We do hear in the media and also in the fund managers’ community about the next big event like GFC to occur in the China. Nobody knows when and how and to us most of the time it looks like many are anchoring GFC, and China is the next biggest economy of the world after USA.

We at Valueoperations do not take those comments seriously but as the world economy is all interconnected, we keep a close eye on the subject and filter our reading and use our skills to understand the situation.

One of the prominent and highly successful fund manager recently said, “no matter how one analyzes the available data, China’s economy has already started to experience a hard landing.” We also hear from many that the short Yuan is the single most crowded trade in the world at the moment. That could be true, but that doesn’t mean to us that Yuan is trading at wrong price. Our view is that it could be limited, as China has a vast foreign reserves to support its currency. But the situation at those ground too are changing very fast as the capital from the country is outflowing and it will be interesting to see how China will manage this outflow. In our view the best thing to do in this situation is to de-value currency, which we can relate to Indian economy too right now and see the pressure pretty every day on the rupee.

Kyle Bass is one of the fund manager who looks at what everyone else is looking at but sees what many have not seen. That is the primary reason why we are always more interested in what he has to say even though we do not support to his investment style of taking very concentrated portfolio. His profitable bets against US credit defaults swaps and then against Europe and Greece suggests his thoughts are worth paying attention to.

From mid of last year he had turned his attention to China and believes China’s [FX] reserve are “already below a critical level of minimum reserve adequacy.” In a recent letter explaining his short thesis he added; “in other words, China is CURRENTLY out of the required level of reserves needed to safely operate its financial system.” Bass points out that time has run out for China, its back is completely up against the wall and “the view that China has years reserves to burn through is misinformed.”

The bulk of his fund, Hayman Capital’s, portfolio is devoted to the Yuan short. You can read the full Hayman Capital letter HERE.

Again, it is his view and the probability of him to be right is 50%. We had taken insight from his letter and are analysing what something like that if takes place in realty, do India has enough foreign reserves to pull out from it and what impact it can do to Indian rupee.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we advise to take professional advice before going ahead with our views.