"Even if Su can decisively cut his losses, close his positions, and exit now, he would probably lose at least over 200 million USD, right? If he exits with such a massive loss, his reputation in the domestic financial circles would surely take a big hit."
Gu Huaming said.
Gu Chijiang said:
"According to current institutional holding data, in the GBP exchange rate trading market, the number of short orders held by the 'Huayi Chengyuan No. 1' hedge fund managed by President Su is already the largest among institutional short positions. Such a massive short position, to exit the market, would inevitably require a large-scale repurchase of long orders.
In other words, this institution's stop-loss liquidation would inevitably lead to a further surge in the GBP exchange rate. And the sustained surge in the exchange rate would further increase the cost for this institution to close its positions and exit.
What's more... Many capital institutions globally are now watching the movements of the 'Huayi Chengyuan No. 1' fund.
Once everyone discovers that this fund intends to liquidate on a large scale to cut losses and escape the market, they will inevitably further increase their long positions, continuously driving a short squeeze.
Thus, in this predicament, for the 'Huayi Chengyuan No. 1' fund to close all its short orders, it wouldn't be possible with just a 200 million USD loss.
According to my estimate, if this fund wants to exit at all costs, completely closing its 85,000 short orders, it would at least push the GBP exchange rate up by 500 points. And 500 points would mean that the other party would lose at least over 400 million USD to complete the final liquidation and exit.
This loss... I'm afraid President Su of 'Huayi Capital' simply cannot bear it."
Hearing his father's words, Gu Huaming was startled and quickly said,
"So, according to you, Father... Su only has one path left: margin call and liquidation?"
"Theoretically, the other party has two paths. Either continue to hold positions and endure, waiting for the GBP exchange rate to pull back to a relatively low level due to changes in subsequent news, and then gradually cover and stop losses.
However, this path... with the market generally bullish on the GBP exchange rate and various long-holding institutions globally intentionally driving a short squeeze, is basically a path of slow death with little hope.
The other path is to concentrate funds under market news. By leveraging sentiment, continuously injecting funds in the form of new short orders to guide the GBP exchange rate trend and suppress the bullish momentum.
As long as the bullish momentum can be suppressed, causing the GBP exchange rate to temporarily fall, and at the same time causing some long positions to cover shorts and exit, then this fund will have a chance to reduce its current massive losses and complete large-scale liquidation actions.
However, to do this... First, it requires the cooperation of negative news, and second, it requires a huge amount of capital as support. Currently, it's clear that President Su doesn't have much capital left to invest, and furthermore, market news doesn't support it.
Therefore, comprehensively speaking, if President Su doesn't act decisively and cut his losses heavily to exit, and delays further... I'm afraid the only outcome will truly be a margin call and liquidation."
Gu Chijiang said.
"Haha... good,"
Gu Huaming laughed loudly.
"At the dinner hosted by 'Huifeng Bank' back then, this person was arrogant and disdainful of others. Who would have thought... retribution would come so quickly."
"This person is still too young,"
Gu Chijiang shook his head and chuckled.
"Without experiencing the brutal nature of the foreign exchange market, he actually dared to invest hundreds of millions of dollars in a massive gamble. Does he really think that the global foreign exchange financial market is like the A-share market, where a bunch of novices are playing?
This is the foreign exchange market. Participants include not only speculative funds and retail investors, but also major global investment institutions, hedge fund companies, and even central banks of various countries. And the institutional groups clustered within, no matter which one, are all giant crocodiles that devour people without spitting out bones."
He had been in the financial market for nearly twenty years, and even now... he was still cautious and treading on thin ice.
It was really hard for him to imagine how Su Yi, a young man in his twenties with only a few years of market experience, dared to stake all his wealth on a massive gamble in the foreign exchange financial market, specifically on the GBP exchange rate, which is known as the 'Demon Pound.'
Like him, at this very moment, there were others who also didn't understand.
This included a number of well-known investment institutions, and even state-owned institutions, from mainland China and Hong Kong, who had been continuously monitoring the changes in 'Huayi Capital's' GBP short positions.
"Old Meng, what do you think of 'Huayi Capital's' current predicament?"
In a quiet teahouse in Hong Kong, Kong Fansheng, Investment Department Manager of 'Huayin International,' asked his colleague.
Meng Shengfei, Kong Fansheng's colleague and also Investment Department Manager of 'Huayin International,' responded:
"Are you referring to 'Huayi Capital's' 'Huayi Chengyuan No. 1' fund product being deeply embroiled in the GBP exchange rate predicament, hunted and short-squeezed by major global capital institutions?"
"Exactly! That's it, what's your take?"
Kong Fansheng said.
Meng Shengfei replied:
"Alas, President Su is still too young. Before investing, he probably didn't fully consider the extreme investment risks of the foreign exchange market. Foreign exchange contract trading is completely different from stock trading. Under the support of immense leverage, the investment risk factor can be said to be more than ten times that of the stock market.
Admittedly, President Su achieved a hundredfold performance in half a year in the domestic A-share market. But I always feel that he's treating the foreign exchange market like the stock market, failing to demonstrate a mature risk control management mechanism and not foreseeing the wolf-pack tactics of major global capital institutions, which has led to the current dire situation where this fund is caught between a rock and a hard place."
"Hmm."
Kong Fansheng nodded slightly.
"Everything you said is correct, but I always feel that President Su, who achieved such brilliant investment results during several consecutive stock market crashes in the A-share market, doesn't seem like someone without a concept of risk control management.
Moreover, I heard that 'Huayi Capital's' 'Huayi Chengyuan No. 1' hedge fund product is the company's proprietary product, and its capital source is basically the principal President Su accumulated in the A-share market.
This person dared to stake all his accumulated funds, so logically... he should have made sufficient investment plans and risk control management."
"Perhaps,"
Meng Shengfei pondered, then said,
"I still can't understand why President Su is so bearish on the GBP exchange rate."
Kong Fansheng said:
"Starting from the fundamental economic feedback from the UK, the current GBP exchange rate indeed has a risk of further decline. Furthermore... from a long-term trend perspective, the GBP exchange rate has been in a continuous downward trend for several years. Being bearish on the GBP exchange rate, from a certain analytical perspective, also makes sense."
"But he shouldn't have established such a large position at the very beginning of entering the market. Also... this 'Huayi Capital' company's internal management also has major problems. The internal core trading data was leaked almost immediately after the institution established its position, spreading widely. This internal control... aren't the loopholes too big?"
Meng Shengfei said.
"I find that strange too. I always feel that this institution was targeted from the very beginning. Its positions are basically transparent, and with such a massive position size, once fully exposed to opposing institutions, how could it not be precisely targeted?"
Kong Fansheng said.
"Alas, it's probably impossible for 'Huayi Capital' to exit completely unscathed now."
At this point, Meng Shengfei couldn't help but sigh, and continued,
"For so many years, Chinese capital institutions investing overseas, whether state-owned or private, have not had any successful cases. This is truly... discouraging."
Kong Fansheng replied:
"There's nothing we can do. How many years has our country's financial history been developing? How many years have Western countries been developing? The gap is over 100 years, so it's reasonable for the domestic market to restrict foreign investment in the financial sector and prevent large-scale foreign capital intervention in the domestic financial market."
"The key is... being harvested like this every single time, it's disheartening. Old Kong, can you analyze how President Su might manage to exit unscathed?"
Meng Shengfei said.
Kong Fansheng said:
"I really don't know. As of now, it's impossible to exit unscathed. The fangs of various institutions hunting globally are fully bared, and the GBP exchange rate market has formed a continuous short-squeeze pattern with net long positions.
Unless the Bank of England forcibly intervenes to suppress the GBP's upward exchange rate, then in the short term, the GBP exchange rate can only break upward under the continuous short squeeze by the longs.
Furthermore, considering the current GBP exchange rate level, I guess the short positions currently held by President Su have definitely incurred losses exceeding 170 million USD.
I recall that a few days ago, President Su had to return to China to raise funds when his short positions' losses reached over 70 million USD, right?
According to market rumors, President Su raised approximately 100 million USD. Looking at it now, this 100 million USD in reserve funds is almost completely lost. If this continues...
I'm afraid if the GBP exchange rate pushes up by at most another 300 basis points, the hedge fund under 'Huayi Capital' will face a complete margin call and liquidation."
"Is there no room for maneuver or reversal?"
Meng Shengfei asked.
"Unless market expectations shift, short positions in the GBP exchange rate market surge dramatically in a short period, and short-selling investors can quickly withstand the pressure from the longs and rapidly push down the GBP exchange rate.
However, doing so... would require enormous capital, and simply battling these large global hunting institutions on the market purely with capital might not truly reverse the form and trend of the GBP exchange rate."
Kong Fansheng said.
"To suppress the current bullish momentum, wouldn't it require tens or even hundreds of billions of USD in capital?
I heard that in the past day or two, net long positions in the GBP exchange rate market have reached a new half-year high, exceeding 200,000 lots, and the total GBP long positions held by various global institutions have also reached about 500,000 lots. Honestly... this cumulative volume of long and short orders is somewhat frightening!"
Meng Shengfei said.
Kong Fansheng said:
"It's not just frightening, it's absolutely terrifying."
"You say... should we participate and lend a hand?"
Meng Shengfei said.
Kong Fansheng smiled and said,
"Do you want to go short or long?"
Meng Shengfei replied:
"Nonsense, definitely short. Going long at this point would only add fuel to the fire, wouldn't it?"
"Adding fuel to the fire is still better than being encircled and killed by the longs. The outcome of this long-short battle has mostly been decided. Whether we assist or not, it actually doesn't make much difference anymore."
Kong Fansheng said.
"So... you're not planning to participate?"
Meng Shengfei asked.
Kong Fansheng replied:
"I'll just watch how this grand drama unfolds. Although we don't have to be responsible to investors, the funds we use for investment are state capital, and we need to be responsible to the state. While I sympathize with President Su and admire his courage, it's wrong to invest funds into a market that has a high probability of losing money."
"You're being arbitrary. Changes in the financial market are the most unpredictable; no one can foresee future outcomes. Since fundamental analysis suggests the GBP exchange rate should trend downwards in the long term, then short-term market struggles might see the shorts prevail.
Furthermore, in reality... I believe the current situation in the GBP exchange rate market, where net long positions significantly outweigh net short positions, is actually relatively favorable for the downward development of the GBP exchange rate.
After all, if an unexpected market event occurs, these long positions, in order to cover and close, will definitely trigger a stampede, causing a severe imbalance in the market's long-short dynamic."
Meng Shengfei said.
Kong Fansheng replied,
"What you say isn't wrong. However, the probability of such an event happening is extremely small. In terms of market analysis, the most likely scenario is that after 'Huayi Capital,' the largest short position holder in the current GBP exchange rate market, is forced to liquidate or forced into large-scale covering, the GBP exchange rate will see a significant pullback.
Before that... major global capitals will certainly further invest funds to continuously squeeze shorts, pressuring 'Huayi Capital' to cover and close its positions. So... no matter what, I won't gamble."
And just as their opinions diverged,
almost exactly as Kong Fansheng had predicted...
Major international capital institutions hunting 'Huayi Capital' all increased their long positions, further pushing the GBP exchange rate upwards.
Meanwhile, under Su Yi's watchful eye,
as the GBP exchange rate broke above the 1.5150 level, the 'Huayi Chengyuan No. 1' fund product's position loss also reached 200 million USD.
However, Su Yi looked at the continuing expansion of the fund product's losses.
Especially noticing that net long positions in the GBP exchange rate market, under the continuous short squeeze and even sustained bullish sentiment and long position building by various global capital institutions, had reached the 250,000 lot level, the look in his eyes showed no pessimism or panic; instead, it became even sharper and more excited.
Taking advantage of the market trading time shifting into the evening US session,
and also seizing the moment when, both domestically and internationally, online investor communities were most active regarding exchange rates and discussions were at their peak,
Su Yi opened domestic and international online investment communication platforms.
In his capacity as the product manager of 'Huayi Chengyuan No. 1 Hedge Fund,' a speculative fund from the 'Financial Street Fuxing Road' trading seat, and the founder of 'Huayi Capital,' he posted a declaration of war to the various major global capitals that had converged on the GBP exchange rate market and formed a short-squeeze encirclement against him.
At the same time, leveraging his influence in domestic financial circles,
he published an in-depth article analyzing why he was bearish on the GBP exchange rate and why he was shorting it.
He also called on domestic retail investors and speculative funds to use their spare money to short the GBP exchange rate.
(End of Chapter)