parentshiftbook Chapter 146 The Storm is Coming
Chapter 146 The Storm is Coming
Seven o'clock in the morning, at home in Jinan.
Ling Yun had just finished having breakfast with her parents. Her father, Ling Weiguo, was reading the newspaper, and her mother was knitting a sweater.
the phone is ringing.
The mother answered, "Oh, wait a minute."
Lingyun took the microphone.
"It's me, Li Ziyu."
"explain."
"The Thai baht is in trouble." Li Ziyu's voice was urgent. "Yesterday alone, the forward exchange rate fell to 28.5, a 10% drop from when we established our position. There was also a large sell-off in the spot market. The Bank of Thailand intervened three times, spending at least $500 million of its foreign exchange reserves."
Lingyun walked onto the balcony.
"Who's throwing it?"
"The Quantum Fund is leading the charge, with Tiger Fund, Goldman Sachs, and Morgan Stanley all participating. The scale is huge, with each deal worth hundreds of millions of dollars."
"How's our position?"
"The unrealized profit on NDFs has exceeded thirty million US dollars. There's also a profit in stock index futures, but the volatility is too high, I'm worried... should I reduce my holdings?"
"No reduction," Ling Yun said. "This is just the beginning."
"But what if the Bank of Thailand holds up..."
"They can't hold on." Ling Yun looked out the window. "Foreign exchange reserves are limited, and foreign debt is too high. Once the market forms expectations of devaluation, capital will flee. It's a self-fulfilling prophecy."
"Then we..."
"I'm going back to Hong Kong," Ling Yun said. "I'm leaving today."
I hung up the phone and went back to the living room.
The mother asked, "Are you leaving again?"
"Yes. There's an urgent matter in Hong Kong."
The father put down his newspaper: "Be careful. Money can't buy everything, but your life is more important."
"Okay, Dad."
I packed a few things: a backpack, a laptop, and my passport.
Zhao Hu drove him to the airport.
At 4 p.m., the plane landed at Hong Kong Kai Tak Airport.
Li Ziyu waited at the exit, looking exhausted.
"Go straight to the company," Ling Yun said.
In the car, Li Ziyu explained the details.
"The Bank of Thailand issued a statement this morning saying that the Thai baht exchange rate is stable and the economic fundamentals are good. But the market doesn't believe it. The forward exchange rate continues to fall and is now at 28.8."
What about the stock market?
"The SET index fell 5% today, closing at 735 points. Foreign capital saw a net outflow of $300 million."
"Our position?"
"The notional amount of the NDF is US$500 million, which, based on the current exchange rate, represents a paper profit of US$35 million. The short position in SET index futures also represents a paper profit of US$8 million."
The car arrived at Yuanhang Capital in Zhonghuan.
In the trading room, three traders stared at six screens: currency charts, stock market candlestick charts, and news feeds.
The traders looked up when they saw Ling Yun enter.
"Continue." Ling Yun took off his coat. "Pull up the Bank of Thailand's intervention data for the past month."
Data charts are projected onto the wall.
Over the past 30 days, the Bank of Thailand has intervened in the foreign exchange market 17 times, using approximately US$3.5 billion of its foreign exchange reserves. Currently, its foreign exchange reserves stand at approximately US$32 billion, but its short-term external debt exceeds US$20 billion.
"They're just putting on a brave face," Li Ziyu said.
"It won't last long." Ling Yun looked at the charts. "At this rate of consumption, the reserves will be depleted in two months at most. At that point, we'll either have to raise interest rates or abandon the fixed exchange rate."
"The market is betting they'll give up."
"Because raising interest rates would drag down the stock market and real estate." Ling Yun walked to the whiteboard. "Thai companies have too high debt ratios. Rising interest rates would lead to large-scale defaults, and the central bank dares not take that risk."
The phone rang, and the Singapore trader reported.
"Mr. Ling, Quantum Fund added another $500 million to its short position in Thai baht today, and Goldman Sachs is also adding to it."
"understood."
The market closed at 7 p.m.
The Thai baht spot rate closed at 26.5, with the central bank pulling it back up, but the forward rate fell to 29.2, indicating that market expectations continued to deteriorate.
The SET index closed at 728 points, down 1% from the previous close.
Lingyun viewed the account summary.
NDF unrealized gains: US$42 million.
Unrealized profit in stock index futures: US$9.5 million.
The total unrealized profit is approximately US$51 million.
This is just the beginning.
"What should we do tomorrow?" Li Ziyu asked.
"Stay put," Ling Yun said. "Let the international speculators take the lead, and we'll wait."
"What are you waiting for?"
"Wait for the Bank of Thailand to make a mistake."
I eat a boxed lunch in the office at 9 p.m.
Zhao Hu bought coffee.
"Mr. Ling, do you think the Bank of Thailand might make a mistake?"
"Under pressure, everyone makes mistakes." Ling Yun took a sip of coffee. "They now have two choices: one is to use more reserves to weather the storm, but reserves are limited. The other is to raise interest rates, but that would trigger an economic recession. Whichever they choose, their weaknesses will be exposed."
"So what are our bottom lines?"
"If the Thai baht exchange rate falls below 40, we will gradually close out our NDF positions to lock in profits. If it falls below 50, we will close out all our positions."
Do you think it will drop to 50?
"Yes," Ling Yun put down his coffee cup. "Because once devaluation begins, it will cause a stampede. Companies will sell Thai baht and buy dollars to repay dollar debts, and the public will panic and also exchange their baht for dollars. The central bank's reserves won't be enough to stop it."
After finishing my meal, I continued monitoring the market.
The international foreign exchange market is still trading, with the Thai baht forward rate falling to 29.5.
At one o'clock in the morning, Li Ziyu said, "You go back and rest first, I'll keep an eye on things."
"Okay." Ling Yun stood up. "If there are any major changes, call me immediately."
Back at the hotel, I took a shower.
I was lying in bed, but I couldn't fall asleep.
My mind is filled with numbers: exchange rates, reserves, debt, and positions.
He knew the course of history. On July 2, 1997, Thailand announced it was abandoning its fixed exchange rate system, and the Thai baht plummeted by 17% that day, eventually depreciating by more than 50%.
It's April 30th now, two months to go.
These two months will be extremely difficult.
Because the market will fluctuate, the central bank will resist, the media will spread rumors, and there may even be news of international organizations providing assistance.
These will all cause fluctuations.
He must remain calm.
The next day, July 1th.
I arrived at the company at eight o'clock in the morning.
Li Ziyu's eyes were bloodshot, clearly indicating that he hadn't slept all night.
"At 3 a.m., the Bank of Thailand issued a notice saying that it would raise short-term interest rates and restrict speculative trading of the Thai baht by foreign investors."
"Market reaction?"
"The Thai baht forward exchange rate rebounded to 28.8, and the SET index opened 2% higher."
"As expected," Ling Yun said, looking at the screen. "They're trying to resist using policy tools."
Should we reduce our holdings?
"No reduction," Ling Yun said. "This rebound won't last. Raising interest rates will exacerbate corporate debt pressures, and restricting foreign investment will scare away more capital. They're drinking poison to quench their thirst."
Sure enough, by noon, the market began to reverse.
Following news of interest rate hikes, two Thai real estate companies announced debt restructurings. Bank stocks plummeted.
Foreign investment restrictions have triggered an acceleration of capital flight.
The Thai baht forward exchange rate has fallen back to 29.2.
The SET index reversed its gains and fell, closing down 3% at a new low for the year.
"See?" Ling Yun pointed at the screen, "The more forceful the policies, the more panicked the market becomes."
In the afternoon, I received a phone call from Bangkok.
It's Lee Tae-geon.
"Mr. Ling! Something terrible has happened!" His voice trembled. "The central bank is investigating our previous fund outflows! Several of my friends have been called in for questioning!"
"Calm down," Ling Yun said. "That money has already been converted to US dollars and is overseas. They can't find it."
"But they're investigating the Digital City project! They're accusing us of illegal fundraising!"
Are pre-sale contracts legal?
"It's legal... but they say we transferred funds overseas, which is suspected of money laundering."
"Let them investigate," Ling Yun said. "Tell those friends to withstand the pressure. Once this is over, their dollar assets will appreciate."
"But what if..."
"There's no 'what if'," Ling Yun interrupted him. "We're all in the same boat now. If the boat capsizes, nobody will survive."
"……Understood."
After hanging up the phone, Ling Yun said to Li Ziyu.
"Internal turmoil has begun in Thailand. The elites are protecting themselves, and the central bank is finding scapegoats. This is a harbinger of collapse."
Should we increase our holdings?
"No more," Ling Yun said. "Maintain the current position. Wait for the signal."
"What signal?"
"The central bank governor resigns, or the prime minister is replaced." Ling Yun looked out the window. "That means they've admitted defeat."
Outside the window, it was a cloudy day in Hong Kong.
Dark clouds filled the sky above Victoria Harbour.
A storm is really coming.