1997 Asian Financial Crisis

Pad Thai Hedge FundCase: Thailand

Raj Kavadi, Alberto Aular, Gary Vartanian, Haiwei Cao, Arjun Banerjee, David Song

Presentation Date: 11/01/1996

Analyzing the growth- Avg 8% GDP growth

- $14.329 Bill Inflow- ↑100% from 1993

- Stock market ↑175% since 93’

- Property Sector ↑395% from 93’

- Exports: ↑100% since 93’

- Rating: Moody (AAA) & SP (A)

BUT…...- Bank Lending as % in GDP 58%- Investment as % of GDP:

- 26% → 41%

Qualitative Research

Source: World Bank

Source: World Bank

Main Qualitative Findings ⇒ Quantitative Findings●Money in circulation →

Huge Inflation

●Market Swimming with Bad loans

●Everything Overvalued!!

●Downward Pressure on E

●Real GDP increase (I) is false

●Held by incoming foreign credit and fixed exchange rate

Quantitative Research

(X-M) + (FB-FL) + (CB buy ฿ , sell $ - CB sell ฿, buy $) = 0

CA + KA + ORT = 0

Predictions

●QTM & PPP ⇒ Depreciation

●BOP ⇒ Depreciation

●Expect Depreciation…

●INSTEAD GET LOSS IN RESERVES

------ NOT SUSTAINABLE --------

Action Plan Within a YEAR!!!!When Run out?

●1 day?

●1 month?

●1 year?

●5 years?

2 Billion Baht

20 Billion Baht

18 Billion leverage

18 Billion Baht 2 Billion Baht

720 Million USD

Shorting on Real estate and financial services equity

3 Billion Baht

Eh/f = 25 Baht per $

Asset Allocation:

720 Million USD

400 Million USD 160 Million USD

CDS in Mortgages and Thai Government bonds

600 Million USD

160 Million USD

160 Million USD 162 Million USD

922 Million USD 46.1 Billion Thai BahtEh/f = 50 Baht per $

922 Million USD 27.6 Billion Thai BahtEh/f = 30 Baht per $

27.6 Billion Thai Baht- (18 Billion Thai Baht) - (10% Interest)_____ 7 Billion Thai Baht+ 3 Billion From Shorting10 Billion Thai Baht!!!!!

Gross Profit

10. Billion Thai Baht 2 Billion Equity

5+ FOLD RETURN !!!!!

Return

Bhat per $ Profit (Billions of Baht)

Return (Fold Amount)

30 10.66 5.33

40 19.88 9.94

45 24.49 12.245

50 29.1 14.55

Credibility:300% return

George Soros

Past Precedent

Thank you!