China Story Turns Negative

George Papamarkakis, co-founder of London-based hedge fund North Asset Management LLP, said he is concerned about declining investment in China's real-estate sector and what that will mean for demand for iron ore from Australia. Iron ore is the primary ingredient in steel, which is used in construction. Thanks in part to the iron-ore trade, China is Australia's biggest trading partner.


Mr. Papamarkakis, who manages some $200 million, is preparing to short, or bet against, the Australian dollar once again. He cashed out this trade in October after the Australian
dollar had fallen more than 10% from its 2011 high as Europe's debt crisis sent investors scrambling to reduce risk. If it climbs against the U.S. dollar to $1.04 from near $1.02 now, he is likely to take out bets against the currency.

Late Friday in New York,the Australian dollar was at $1.0218 from $1.0167 late Thursday.
"In China, the growth mix will be less investment-led, which should be negative for the commodity currencies like the Australian dollar," he said. His fund is up 20% this year. Mr. Papamarkakis isn't alone. Roughly 17% of net positions held by currency funds are negative bets against the Australian dollar, as of Nov. 30, according to JW Partners, a research and advisory firm that tracks the performance of 27 funds that have a combined $20 billion under management in currency strategies.

The Wall Street Journal - 10/12/2011