HONG KONG, June 12 Betting on a weaker Chinese currency is the best way for investors to protect an equity portfolio as China enters a protracted period of slowing growth, said Carl Huttenlocher, chief investment officer of Myriad Asset Management.
A weaker yuan would spark export competitiveness, which has suffered in recent years due to sluggish global demand and a stronger exchange rate, Huttenlocher, the former Asia head of hedge fund Highbridge Capital Management, told the Sohn/Karen Leung Foundation Conference Hong Kong on Thursday.
A weaker currency would also stoke inflation and reduce China's debt burden, which since the 2008 financial crisis, has risen to astronomical levels as compared with GDP, he said.
It would also be the least painful alternative than a property market collapse or the sudden failure of a large financial institution, such as Lehman Brothers, being the other options for China.
To play this trade, Huttenlocher recommended buying U.S. dollar call spreads traded against the offshore renminbi in the Hong Kong market. He expects the offshore yuan to weaken to 7 per dollar. On Wednesday, it was trading at 6.2 per dollar.
On a risk-adjusted basis, the Chinese currency has rewarded investors very well over recent years even as other emerging currencies have suffered. That changed this year when the Chinese central bank set out on a sustained campaign to weaken its currency to stamp out speculative bets.
Myriad, which launched with about $300 million in 2011, is one of Asia's best known hedge funds managing $2.4 billion, according to the firm's March filing with the Securities and Exchange Commission. (Reporting by Nishant Kumar and Saikat Chatterjee; Editing by Jacqueline Wong)