Obligatory “before the government does, lol”, obviously, but you’ve got to appreciate this kind of big click energy.
Over on the WallStreetsBets subreddit, user The-Crazed-Crusader has published his intrepid plan to “short the whole of South Africa”. This is the same subreddit that was recently involved in the GameStop dramageddon, so for its users, this isn’t a totally absurd scheme. For everybody else, I dunno.
I also dunno how exactly short-selling an entire country works, but according to this article by somebody much more clever than me, an investor can purchase equities via exchange-traded funds (ETFs) on a national level.
The concept of short selling can be applied to country ETFs since they trade just like any other US equity. International investors that believe a country’s economy is in trouble may short sell that country’s ETF by borrowing and then immediately selling the ETF for a profit, betting on the fact that they will be able to repurchase the equity and pay back the loan at a lower price over time.
With local inflation consistently increasing and the US dollar not so much, The-Crazy-Crusader is making bank. I think? Let him explain it, because I can’t.
Now my native currency are US dollars, where inflation in 2020 was 1.4% while the South African Rand’s inflation was 4.12% in 2020. That equals a 26.8% return on investment per year from that simple short position. But I’m expecting US Dollar inflation to stay between 1-2% a year while the Rand (ticker ZAR) stays north of 4% with inflation spikes inevitable over the next decade. This position also reduces my market beta, much needed for me as I’ve got hugely leveraged positions on American ETFs. This isn’t a short term swing trade, I’m waiting for SA to implode.
Okay, so he’s loaning ZAR to purchase USD and making a profit when the currency value drops and he covers the position. Hypothetically, I guess, it works. But if it actually worked in reality, wouldn’t everybody be short-selling volatile currencies like this?
Anyway.
If the economy bombs tomorrow, you can blame The-Crazed-Crusader.
