Saturday, February 25, 2017

In Response To President Trump China Claims It Will Not Manipulate Its Currency

currency manipulation
The investment industry and the foreign exchange industry know China likes to play with the value of the yuan. President Trump calls China the “grand champions” of currency manipulation. There are reasons to believe China plays with the yuan to help the country’s export business. China denies those all the allegations related to currency manipulation, but foreign change investors know better. Trump’s new treasury secretary plans to take a more methodical approach to the currency manipulation issue, but China’s foreign minister made a point to tell the world that Trump, and the United States, must look at the exchange rate issues “fully and correctly.”

China’s economy is doing better than almost every other country in the world. India’s GDP output percentage in 2017 could better China’s GDP percentage, but according to Jim Dondero, the CEO of the Dallas investment firm Highland Capital Management, China doesn’t like to come in second. The Chinese considered themselves “grand champions” of economic development, not champions of currency manipulation. The central People’s Bank of China didn’t comment on the manipulation issue and won’t, according to Dondero. Jim believes the central bank is in over its head because of bad debts. Investors like Dondero are betting that the Chinese will be forced to devalue the yuan over the next 18 months. Many investors think the government will be forced to use capital reserves to wipe the bad debts off bank books.

The yuan fell 6.6 percent against the dollar in 2016, and that was the largest drop since 1994. There is no doubt. The Chinese economy is slowing down, and China needs more foreign investment. But investors like Dondero are concerned about the Chinese government’s attitude when it comes to foreign investments. In 2016, the Chinese forced foreign investors out of the Chinese stock market. Many investors would rather bet against China’s economic growth. All the signs indicate that China will have a tough financial road in 2017, and Dondero, and other investors, say Trump could exacerbate China’s financial and economic issues.

Chinese investors are buying gold instead of investing in the Chinese stock market, and that is a concern for investors like Dondero. But Highland Capital and other hedge funds can’t completely ignore what is happening in the world’s largest economy. The days of making big returns from Chinese assets are over for many foreign investors. The smart investors are betting China’s currency is going to lose more than 40 percent of its value over the next two years. If that happens, (China said they will make sure that does not happen) there will be a lot of smiling hedge fund investors.

James Dondero has been the catalyst for the rapid growth of Highland Capital Management. Dondero co-founded the investment firm in 1993. Dondero started his career in the investment industry in 1984 after graduating from the University of Virginia. Dondero went to work for Morgan Guaranty and then American Express after graduation. Jim spent four years with American Express, but in 1989 he was named chief investment officer of a subsidiary of Protective Life. Jim is the Chairman of the Board of Cornerstone Healthcare, NexBank, NexPoint and CCS Medical. He is also a member of the board of MGM Studios. Jim is active in several nonprofits in the Dallas area, through the Highland Capital Foundation.

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