Jake's View

China should know that Soros is an expert at seeing through official bluster

Speculator excels at calling the ins and outs of political misfortune in financial markets

PUBLISHED : Wednesday, 27 January, 2016, 3:15pm
UPDATED : Wednesday, 27 January, 2016, 3:15pm

The mainland’s state media has escalated its rhetoric against market speculation on its currency and economy, with a top mouthpiece claiming billionaire investor George Soros had “declared war against China”.

SCMP, January 27

Declared war? That’s also what Malaysians said about George Soros when he took Malaysia’s central bank to the cleaners on a big currency bet in 1992.

Bank Negara only got what it had asked for on that occasion. In a remarkable oddity, it had made itself one of the world’s biggest currency speculators and then decided to stake the house on the word of Britain’s prime minister, John Major, that Britain would join the euro.

Bad move. The British government had a way throughout the 20th century of promising to hold the line on devaluations and then breaking its promises. The simple facts of market forces were against it on this occasion, too, and Soros confidently took the opposite side of the Bank Negara bet.

Pound sterling tanked when the resolve of a British prime minister then again proved as firm as jelly and Bank Negara reportedly lost US$4 billion, although no-one will ever know for sure as its accounts that year were notably opaque. The auditor would say only that all questions asked had been answered.

Vultures don’t feed on live meat. Speculators don’t feed on live markets

But Soros, the biggest single winner, walked away with a profit of US$1 billion. Yes, they hate him in Kuala Lumpur, hate him bad.

Soros is a Hungarian refugee who, in his younger years, had stark experience of the lies of officialdom and consequently developed what is almost a sixth sense for when politicians will stand and when they will fold. He really is very good at his game when he can put this keen insight to work.

But let us have the full measure of the man. He is really not much better than others when investing on ordinary market considerations. Investment funds with which he was associated were among the biggest losers in the dotcom bubble of 2000. Last in, worst out, said the pundits amid a good deal of laughter.

On this occasion, however, he is back to the game at which he excels of calling the ins and outs of political misfortune in financial markets. Tremble in your boots, all ye who dare stand against him. The master is bestride his world again.

Let us also have it straight about his sort. Vultures don’t feed on live meat. Speculators don’t feed on live markets.

The question that these whingeing state media mouthpieces in the mainland need to ask themselves is whether the foreign exchange value of the yuan or the average level of share prices on the Shanghai market truly reflect the balance of investment pull and push or whether they are still artificially supported.

If the second of these two, then the yuan in particular is indeed vulnerable to a Soros raid. Beijing wants the yuan to be an international currency. Although it has only partially achieved this ambition, here is one of the prices it must already pay.

But should it then happen that a steep devaluation of the yuan results, ordinary Chinese citizens may have reason to be thankful rather than otherwise to Soros. He will have forestalled an even bigger financial crisis by forcing the authorities at an early date to confront the folly of their market rigging.

It is what he did in Malaysia in 1992. I shudder at the thought of what might have happened if he had not checked Bank Negara’s currency speculations that time. The whole of Malaysia might have gone bust rather than its central bank alone.

Similarly, I think he did Thailand a great service in 1997 by knocking out the artificial props of the baht. The country was already headed for an unavoidable financial crisis that the Bank of Thailand was trying to stave off. This crisis would have been much worse two years later. “Thank you, George,” is what ordinary Thai citizens should have said.

But they didn’t and neither will the citizens of China. They will vilify him on cue from the state media.

For his part, however, I think he will just sit quietly at his desk in New York and reflect on how nothing has changed since Hungary.

And count his growing billions.