Emerging Sovereign Group’s Nexus strategy fund is leading the charge. The $500 million fund, which is managed by Brian McCarthy, is devoted to a bet that China will fall off the rails this year. In particular, Nexus is betting against the Chinese yuan. At the end of last year, McCarthy predicted that China would allow the yuan’s drop against the dollar to accelerate after the International Monetary Fund designated the yuan a global reserve currency. And as it turns out his big short bet was spot on. According to Bloomberg, ESG’s Nexus strategy gained 16.5% in December.
ESG’s Nexus strategy is just one of the funds that’s betting against China. One of China’s most vocal bears is Crispin Odey, founder of the $12 billion Odey Asset Management. Back in October Odey wrote in his monthly letter to investors that:
“For me that something is China. China’s problems are going global. The authorities will not be able to solve their four bubbles – in housing, the bank lending market, the stock market and their own currency – with current policies. This is a $29 trillion problem area and current policies can only exacerbate overproduction and further price falls in anything connected with Chinese output. Ultimately the currency will have to fall and by at least 30%.”
And after a rough 2015, which saw the value of Crispin Odey’s flagship Odey Europeanfund fall 21.3%, Odey’s bet against China is already paying off handsomely this year. His main hedge fund jumped 14% in January, erasing its loss last year after a gain of 3.7% in December.
Another London-based hedge fund, Omni Partners is also reaping the profits from a well-timed bet against China's currency. Omni Partners has predicted that the yuan could fall 15% against the dollar in 2016, and this outlook helped the group’s macro fund gain 8.4% last year.
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