Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

George Soros sees trouble ahead for the global economy and is concerned that large market shifts may be at hand. The billionaire investor is worried about China, though sanguine about the possibility that Britain may leave the European Union. He may have his targets the wrong way round.

Soros's views, reported by the Wall Street Journal on Thursday, highlight a surprising discrepancy in currency markets, 14 days before the U.K.'s referendum on its EU membership. While the implied volatility of the pound spiked to 22.35 percent on June 6, the highest since February 2009, expected swings of other currencies that would be affected by a so-called Brexit remain subdued.

Exit Wounds
Implied volatility of the British pound hit 22.35 percent on June 6, the highest since 2009
Source: Bloomberg

The euro is pricing in slightly more volatility, though the increase is tame compared with what pound traders are seeing. Other currencies suggest little change in risk ahead compared with the recent past. Implied volatility on some emerging market currencies is below historical levels. 

Bright Future
Except for the British pound, traders aren't predicting a surge of volatility ahead for most currencies
Source: Bloomberg

That's an unusual state of affairs considering the potentially seismic impact of a Brexit. Soros, who's renowned for making $1 billion betting against the pound in 1992, told the Journal that if Britain leaves, disintegration of the EU would become practically unavoidable. Still, he said he's confident that as the Brexit vote approaches, the "remain" camp is getting stronger.

That's not what the polls, or the betting markets, show. In the week started May 30, more money was staked on the U.K. leaving the union than the opposite, the first time that happened since Ladbrokes began taking wagers on the outcome of the referendum. Earlier this week, polls by YouGov, ICM and TNS showed the "leave" side ahead, with more undecided voters moving into the break-away camp.

On China, meanwhile, Soros says that continued weakness will exert deflationary pressure on the U.S. and global economies, with capital flight continuing and conflict within the political leadership complicating its ability to deal with financial issues.

Here, though, the news has improved markedly. Exports are stabilizing, the decline in foreign-exchange reserves has steadied, and the median economists' forecast for GDP growth in 2017 stands at 6.25 percent, compared with 6.2 percent at the beginning of March.

Less Pessimistic
Economists surveyed by Bloomberg are revising up their forecasts for Chinese growth next year
Source: Bloomberg

Soros has made a number of bearish calls that haven't played out recently. He may be right that a major market shift is at hand, but China isn't going to collapse anytime soon. The bigger risk may be the one that's hiding in plain sight, off the coast of continental Europe.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Christopher Langner in Singapore at

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