yournovel Chapter 147 The Power of Short Sellers
Chapter 147 The Power of Short Sellers
The air in the trading room was as still as glass.
On the five screens, the Thai baht forward exchange rate curve fluctuated wildly: 26.5, 27.2, 26.8, 27.6... like a dying snake struggling.
"The central bank has intervened again." Li Ziyu stared at the screen. "It just bought 300 million baht and brought the exchange rate back to 26.9."
Ling Yun sat in the chair, not moving.
"How many times has this happened today?"
"This is the third time. There have been 21 interventions this month, which have consumed at least four billion US dollars of foreign exchange reserves."
"How much longer can they hold out?"
"I don't know." Li Ziyu pulled up the data. "According to the International Monetary Fund, Thailand's foreign exchange reserves were about 33 billion at the end of April. At this rate of depletion..."
He didn't finish speaking.
Ling Yun calculated for him: "Two to three hundred million a day, at most three months."
"But selling pressure in the market is getting bigger and bigger." Li Ziyu pointed to another screen. "Quantum Fund added another $700 million in short positions today, and Goldman Sachs and Morgan Stanley are following suit. The forward exchange rate has already fallen to 30.5."
"Our position?"
"NDF unrealized profit of $60 million, stock index futures unrealized profit of $12 million, and spot short position unrealized profit of $18 million."
"Is the margin sufficient?"
"adequate."
"Alright." Ling Yun stood up. "Remain still."
The tug-of-war in May lasted for four whole weeks.
The Bank of Thailand pushes up the exchange rate at the opening bell every day, only to push it back down at the close, causing foreign exchange reserves to decrease at a visible rate: 33 billion, 31 billion, 29 billion...
Panic began to spread in the market.
On May 15, a Thai real estate company announced a debt default.
On May 22, three banks experienced a run on their deposits.
On May 28, the stock market plummeted by 8% in a single day, marking the biggest drop in ten years.
Inside the trading room, the phone kept ringing.
A Singapore trader reported: "Mr. Ling, the unrealized profit on NDFs has exceeded one hundred million US dollars."
A Hong Kong trader reported: "SET index futures have a floating profit of 30 million."
Li Taijian from Bangkok called: "Mr. Ling, some of my friends want to exchange their US dollars for gold. They're worried that the dollar isn't safe either..."
"Tell them that they can buy gold, but don't be too ostentatious," Ling Yun said.
On the last day of May, the Thai baht forward exchange rate fell to 32.5.
The Bank of Thailand's foreign exchange reserves: US$27 billion.
June: Final Offensive
Monday, October 6.
At eight o'clock in the morning, the trading room door was pushed open. A trader rushed in.
"Mr. Ling, the Quantum Fund has made its move!"
On the screen, the Thai baht spot exchange rate plummeted: 27.0, 27.5, 28.0... a drop of 4% in five minutes.
"What is the size of a single sell-off?" Lingyun asked.
"At least one billion US dollars equivalent in Thai baht, to be processed simultaneously by five banks."
The phone rang. The Singapore trader's voice was urgent: "A huge number of short positions have appeared in the forward market! The amount exceeds two billion US dollars! The expiration dates are concentrated in July and August!"
Who is selling it?
"The Quantum Fund is leading the charge, with Tiger Fund and Omaga Fund following suit. And..." the trader paused, """and continued, """Several local Thai banks are also selling."
Ling Yun and Li Ziyu looked at each other.
"The mole has been found," Li Ziyu said in a low voice.
"That's normal," Ling Yun said. "When a ship is about to sink, the rats run first."
The Bank of Thailand has begun a massive intervention.
At 9:30 a.m., $500 million was used to buy Thai baht.
At 10 o'clock, another 300 million will be used.
At 11 o'clock, it's another 500 million.
The exchange rate was barely pulled back to 27.8.
But the cost was heavy; in a single day, foreign exchange reserves decreased by $1.3 billion.
On June 5, the Thai Prime Minister delivered a televised address, stating that "the Thai baht will not depreciate and the country's economic fundamentals are solid."
The market voted with its feet, and the Thai baht forward exchange rate fell to 34.0 that day.
On June 10, interbank lending rates suddenly surged.
"Mr. Ling, look at this." Li Ziyu pointed to the screen. "The overnight interbank lending rate was 12% yesterday, it reached 50% this morning, and now... 200%."
"The central bank is withdrawing liquidity," Ling Yun said. "They want to raise the cost of short selling and prevent arbitrage."
"Will it work?"
"It's useless." Ling Yun shook his head. "This will stifle the real economy. Businesses won't be able to borrow money and will have no choice but to go bankrupt."
Sure enough, over the next three days, interbank lending rates skyrocketed: 300%, 500%, 800%...
On June 15th, it surpassed 1000%.
The financial markets were completely paralyzed.
Businesses are unable to secure financing, banks are hesitant to lend, and the stock market is falling by more than 5% every day.
Foreign exchange reserves: US$22 billion.
News came from Bangkok on June 20.
Lee Tae-geon almost cried on the phone.
"People from the central bank raided my friend's house in the early hours of the morning! They said he's suspected of illegally transferring assets! He's been taken away now!"
"Where's the money?"
"The money is in Switzerland, so it's fine. But he's inside... he might not be able to hold on."
"Let him hold on." Ling Yun's tone was icy. "If he can't, we'll all die together. I can never go to Thailand again, but your family's lives and property..."
On June 25, the governor of the Bank of Thailand resigned.
As soon as the news broke, the Thai baht spot exchange rate immediately fell below 28.0.
On June 27, foreign exchange reserves data was leaked: less than five billion US dollars remained.
Short-term foreign debt exceeds 20 billion.
The market has completely lost confidence.
Panic selling began, with not only foreign investors but also local Thai businesses and citizens snapping up US dollars.
Long queues formed outside the bank.
On June 28, the SET index fell below 600 points, down 30% from its high at the beginning of the year.
October 6th, Sunday.
No one was resting in the trading room; everyone knew the final moments were fast approaching.
Lingyun stood by the window; it was pouring rain outside, and Victoria Harbour was a blur.
Li Ziyu walked over, holding the latest report in his hand.
"An IMF delegation arrived in Bangkok today, but negotiations are reportedly not going well, with Thailand unwilling to accept harsh aid terms."
"They had no choice," Ling Yun said.
"What about us? When will we close our positions?"
"Wait a little longer." Ling Yun turned around. "Wait until Thailand announces that it is abandoning the fixed exchange rate system."
Will they announce it?
"Yes." Ling Yun looked out at the torrential rain. "By next Wednesday at the latest."
Monday, October 7.
The Bank of Thailand did not intervene at the opening of the market as usual.
The market waits in silence.
At 9:00 AM, the exchange rate opened and immediately dropped to 29.0.
10 o'clock, 29.5.
11 o'clock, 30.0.
No intervention was provided.
At 1 p.m., the Thai Ministry of Finance held an emergency meeting.
At 2 o'clock, the Prime Minister's Office held closed-door consultations.
At 3 p.m., hundreds of reporters gathered outside the central bank building.
At 4 PM, or 3 PM Bangkok time (4 PM Hong Kong time), a brief announcement was released:
"The Bank of Thailand (central bank) has decided to adjust the Thai baht exchange rate formation mechanism, effective immediately, to enhance exchange rate flexibility."
The translation is: Abandon the fixed exchange rate system and allow the Thai baht to float freely.
The market exploded instantly.
The Thai baht exchange rate is like a kite with a broken string: 30.0, 32.0, 35.0, 40.0...
Within an hour, the value depreciated by more than 30%.
In the trading room, everyone stood up.
The numbers on the screen were jumping wildly.
NDF's unrealized gains are growing at a rate of millions of dollars per second.
Unrealized profits in stock index futures are also soaring.
Ling Yun remained seated, without moving.
He picked up the phone and called the Singapore trader.
"Start closing out positions. NDF contracts, close out 30% in batches. Stock index futures, close out 50%."
"Now?"
"Now."
The sound of typing came from the other end of the phone.
An hour later, the data was compiled.
Profits from closing positions: $85 million from the NDF portion and $42 million from the stock index futures portion.
Remaining unrealized gains: approximately US$120 million in NDF and approximately US$30 million in stock index futures.
"We'll continue leveling tomorrow," Ling Yun said. "We'll clear it all within three days."
"Not leaving any?" Li Ziyu asked.
"No way." Ling Yun stood up. "We want profits, not to gamble with lives."
Outside the window, the downpour intensified.
Hong Kong is brightly lit at night.
But Lingyun knew that this storm had only just begun.
The collapse of Thailand could trigger a domino effect, toppling down the Philippines, Indonesia, Malaysia, South Korea...
He had already made his plans.
Now, all we need to do is wait.
Waiting to be harvested.