Bill Ackman At Delivering Alpha: Go Long Hong Kong Dollar

Bill Ackman of Pershing Square Capital is at the Delivering Alpha conference sponsored by CNBC and Institutional Investor and he is saying he is long the Hong Kong dollar, saying it is severely undervalued.

Ackman believes that that the Hong dollar will appreciate perhaps some 30%, as Hong Kong moves away from the U.S. dollar.

Akcman said that the Hong Kong economy is very similar to the U.S. economy, with the Hong Kong economy growing GDP 20 times over the last fifty years. Hong Kong and they have a lot of flexibility with what to do with their currency.

Hong Kong has had an exchange-rate system since the early 1980's. Hong Kong's links with China are growing, and now that China's economy has grown sharply, it has become the major trading partner with Hong Kong.

Ackman talked about Hong Kong potentially unpegging from the U.S. dollar, as inflation is soaring in the country, with real estate soaring, an increase in inflation, and a decrease in purchasing power for Hong Kong residents. The Hong Kong monetary base expanded by $671 billion, as they have printed money. Ackman believes Hong Kong has no choice but to continue printing money.

This is creating significant social pressures, as almost everything is imported in Hong Kong. Economists say that Hong Kong's economy has a very high risk of overheating, as the country's GDP soars, and property prices spiral out of control. Wages have declined, inflation has inclined, and property prices have soared. There have been demonstrations and significant protests, despite six percent GDP growth, three percent unemployment. The chief executive of Hong Kong has a 24% approval rating, as cries for an un-pegging to the U.S. dollar continue to climb.

Ackman believes the only way to save the Hong Kong is to allow it to appreciate either by floating, linking to the Chinese Reminibi, a peg to a weight-traded basket, or allow it to trade within a wider band to the U.S. dollar, and have it trade sharply higher, perhaps some 30%.

The impact would improve purchasing power, the cost of living goes down, it cuts off bubble, and banks are hedged. Ackman believes that China would view this as a positive. Ackman said that he likes this because the Hong Kong dollar is so undervalued, and suggested buying options as a way to leverage to profit from this.

Ackman said that the Hong Kong dollar could move from 7.8 to the U.S. dollar to 6.1. He believes there will be a peg to the Yuan by 2015. It is one of the most undervalued currencies in the world, and using options could potentially provide an explosive investment return.

If China implodes, this is a negative for this trade.