(Bloomberg) When Kevin Smith realized late last year that China was getting serious about defending its currency, his first move was to dial back bearish bets on the yuan. His second move: double down on wagers against Chinese stocks.<\/p>\n
Smith, whose global macro hedge fund has returned about 350 percent over the past decade, says China\u2019s attempts to prop up the yuan are tightening domestic monetary conditions and making a credit crisis increasingly likely. To him, that means shares of banks and other \u201czombie\u201d companies may be the first dominoes to fall as China faces a reckoning after years of debt-fueled growth.<\/p>\n
\u201cThese recent monetary tightening measures point to the increased risk that Chinese officials will trigger the credit crisis first,\u201d said Smith, the Denver-based founder and chief executive officer of Crescat Capital, whose China bets in the global macro fund returned about 3.4 percent last quarter. \u201cIt really only increases our conviction that there are opportunities on the equity-side short, particularly if they continue to defend the currency.\u201d<\/p>\n