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: Morgan Stanley funds have billions riding on a bet against Goldman Sachs. It depends what happens on Thursday.


A long-running bet on the value of the Chinese yuan placed by several Morgan Stanley funds are close to reaching their strike price ahead of Thursday’s expiration.

Several Morgan Stanley institutional funds — the advantage
global permanence
counterpoint global

and insight

portfolios — detail in Securities and Exchange Commission filings that as of the second quarter, the funds had call options at a strike price of one dollar worth 7.27 offshore Chinese yuan, all of which expire on Thursday at 10 a.m. Eastern.

On Wednesday, one dollar

traded as high as 7.2682. The offshore yuan refers to the value of the renminbi trading outside mainland China.

Data from the Depository Trust and Clearing Corp. indicates there’s over $6 billion at stake in the swap with a strike price of 7.27 yuan, and another $5 billion at 7.28 yuan. That data doesn’t show who the counterparties are.

The dollar has surged against many rivals, including a 14% gain this year against China’s yuan, on a combination of the U.S. Federal Reserve raising interest rates aggressively while China feels the effect of its strict zero-COVID policy on economic activity.

Goldman Sachs

was the counterparty for all of these trades, according to SEC filings.

The publication Risk said the bets had a notional value of $9.4 billion, and said Morgan Stanley has paid more than $400 million in premiums to run the strategy.

It’s not clear if Morgan Stanley has taken all, or some, of the bet off the table but as of late August, the trades were still in place, according to filings. For that matter, Goldman Sachs may have hedged all or part of the trade.

Morgan Stanley declined to comment, while Goldman Sachs didn’t return a message.

“One would think they would have taken profit or locked some in given the move in USDCNH, up to 7.36,” said Ryan Littlestone at Forex Analytix.

Morgan Stanley funds have similar trades in place for next year, with JPMorgan Chase

as the counterparty.

— Jamie Chisholm contributed to this article

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