The devaluation was China trying to lower its currency, as it was forced to appreciate (its pegged to a band to USD) which was rising rapidly. Their aim is in fact to have gradual appreciation and not overly fast in relation to its trade partners' currencies. Hence China spent over 15% of their reserve stemming capital outflows to support CNY. And of course, a lower currency would help boost its slowing domestic Chinese economy.
So the key is whether USD will continue its climb which in some ways is related to [1] US rates and economy and [2] how other countries are doing. Yellen seems keen to continue the rate hikes while Fed is mixed. US economy is mixed but I supposed future rate hikes would be comfortable until people start feeling it (2%->3% versus 5-6% etc). The other countries to me is a huge crystal ball. I doubt it would have any immediate impact to US's decisions, more of a follow-up action (like capital outflow to US), like a cycle.
So with that, the most immediate hedge would be CNY/CNH bets or HKD (trades at a fixed rate to USD too) like someone mentioned. However, for it to play out, there needs to be a USD rise of the same magnitude or more within that span of time. The first US rate hike had the surprise element which should wear out for subsequent hikes to end at +1% for end 2016. In essence, further CNY devaluation is limited but US could be the surprise element. Also, I think many guys put on that trade way earlier so premiums might be high atm.
A proxy could be the same shorting of EM currencies but that poses an additional layer of risks given their diverse attributes and events. Imho, if you really have to hedge, focus on protecting against a US rising rate environment instead which is clean, most direct and least expected now. On the sides, I think hedging makes one feel powerful, too powerful sometimes and theres a high chance to do something silly, especially in this environment when theres less stuff to do. Right now it means i would not touch fixed and/or low yield stuff like Treasuries (although has been rising lately) or REITs.
Again, just my 5 cents worth. |
