Will Bond Connect hurt the CNH market?

Rating agency Moody’s says offshore renminbi bonds will be marginalised by the imminent China-Hong Kong trading link. Andy Seaman of Stratton Street Capital disagrees.

Opinions vary widely about the likely impact of the upcoming Bond Connect scheme, which will allow international investors to trade onshore bonds in Hong Kong.

For instance, rating agency Moody’s takes the view that the trading link, expected to go live in July, will prove very attractive and ultimately marginalise the offshore renminbi bond (CNH, or dim sum) market.

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`Bond Connect' approval opens China's market further

Following the Stock Connect scheme, Bond Connect aims to become the most convenient channel for foreign institutional investors to enter the Chinese fixed income market, industry sources said.

The cross-border bond trading programme was formally approved by the People’s Bank of China (PBoC) and Hong Kong Monetary Authority (HKMA) yesterday, according to a joint-statement. In the first stage, only Hong Kong and overseas institutional investors are allowed to trade bonds without quota restrictions in the China Interbank Bond Market (CIBM). The over-the-counter market accounts for 95% of total bond trading volume in China.

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Stratton Street teams up with Universal-Investment to launch global credit funds

Stratton Street Capital has teamed up with Universal-Investment to launch two global credit Ucits sub-funds, with Stratton Street acting as asset manager and Universal-Investment Luxembourg SA acting as the management company.

The Stratton Street Ucits – NFA Global Bond Fund UI  and the Stratton Street Ucits – Next Generation Global Bond Fund are both focused on exposure to developed and emerging market bond indices. The funds are targeting higher income than typical investment grade indices.

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China opening up its bond markets, but currency seen as major barrier

China's policymakers plan to open the doors wider than ever to foreign investment in the country's $3 trillion bond market, in part to help shore up the struggling yuan. But the currency is also proving to be a major barrier to the success of their plan.

Foreigners own less than 2 percent of China's $3.3 trillion in outstanding bonds and say getting their cash out of China and recent weakness of the closely controlled currency are obstacles to investment.

Foreign investors are also skeptical they can assess risk accurately when most of the $2.1 trillion in corporate bonds are rated investment grade by domestic rating agencies.

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Emerging Asia risks growing old before becoming rich

Asian populations will grow old at a faster pace than any other region in the coming decades, giving rise to concerns that emerging economies such as China and Thailand could see growth stall before they transition into high-income status, economists said.

Such a development, if it materializes, will strain public finances and limit governments' ability to put in place the necessary systems, such as pensions, to cater to the growing number of seniors, experts told CNBC.

Standard Chartered economists wrote in a note that Asia's rapid aging will hit the growth of China, Hong Kong, South Korea and Thailand by 2020, and Singapore by 2025. That would be before China's projected transition into a high-income economy in 2026 and Thailand's "well after 2040."

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For Chinese companies, if you can't move money overseas, raise it overseas

Chinese companies struggling to get their money out of the country have come up with an alternative: raise money overseas. Chinese firms have issued some $52.6 billion worth of U.S. dollar bonds in the first quarter, up 72% from the previous three months, according to Dealogic, and nearly five times the amount from the first quarter of 2016.

The surge has come as Beijing has tightened curbs on capital outflows, making it harder for Chinese companies to use their yuan earned domestically overseas. Those companies looking to make acquisitions abroad, or even just pay back existing dollar debt, are increasingly turning to the U.S. dollar markets to raise funds.

“If a company is considering an overseas acquisition and looking for financing, even if it is sitting on billions of [yuan] onshore, it may struggle to transfer [that money] offshore to pay for it,” said David Yim, head of debt capital markets for Greater China at Standard Chartered in Hong Kong.

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Why investors can't ignore China bonds?

“China is the third biggest bond market in the world, and it is underrepresented in the global bond indices. But that’s going to change soon,” Seaman told FSA.

In March, Citi announced that it would include China in its emerging market and regional government bond indices, as reported. Its three indices, the Emerging Markets Global Bond Index, the Asian Government Bond Index and the Asia Pacific Government Bond, will include Chinese government bonds starting in February next year. 

Besides Citi, Bloomberg Barclays also launched two new indices to include Chinese sovereigns: the Global Aggregate + China Index and the Emerging Market Local Currency Government + China Index. 

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Biggest Problem for Dim Sum Managers Is Finding Bonds to Buy

  • Debt issuance set to shrink even as maturities climb to record

  • Fubon Asset cuts offshore yuan bond holdings, looks to dollar

Dim Sum bond fund managers, armed with $2.6 billion and little to spend it on, are struggling with a market creaking under the challenges of record maturities and slumping sales.

Ben Hsueh, who oversees an offshore yuan fund at Fubon Asset Management in Taipei, says he has few investment choices at the moment. His high-yield bond fund has reduced holdings of Dim Sum notes to less than 10 percent from 50 percent in 2013, with the remainder made up of a small portion of onshore debt and 90 percent of dollar credit that it hedges back into the yuan.

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Die-Hard Yuan Bull Slams Bears Banking on Dollar Revival

  • Seaman at Stratton Street betting Trump pivot to bolster yuan

  • China’s currency still up in 2017 despite dollar’s resurgence

Andy Seaman has a message for yuan bears: Get over it.

China’s currency is on an upward trajectory and those not positioning for gains will lose out, says the London-based manager of Stratton Street Capital’s Renminbi Bond Fund. Investors fixated on the yuan’s three-year pullback are “obsessed with the past” and will see their performance lag as dollar weakness and resurgent growth in China bolster the yuan.

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Source: https://www.bloomberg.com/news/articles/2017-03-02/die-hard-yuan-bull-slams-retro-bears-banking-on-dollar-s-revival



Stratton Street makes IG push with double launch

Stratton Street has launched two new investment grade bond funds as part of plans to expand its Ucits-compliant fund range, Citywire Selector has learned.

The Stratton Street Next Generation Bond fund was launched on 16 December and forms the basis of the firm’s global investment grade capabilities.

The fund will hold predominately investment grade paper with a minimum of 80% invested in this quality of bonds. This is while having the ability to take up to 20% high-yield exposure should market conditions warrant.

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Bloomberg: Saudi Arabia Is Looking for Friends

Saudi Arabia is set fair to bring its first foreign bond sale for a minimum of $10 billion. But, let's face it, $20 billion has a nice ring to it if they can get to that, especially as it would beat Argentina's $16.5 billion in April.

Indicative yields have been posted in the region of 2.60 percent for 5 years (160 basis points over similar maturity U.S. Treasuries), 3.60 percent for 10 years (plus 185 basis points) and 4.85 percent for 30 years (plus 235 basis points, a total steal that will tempt many hedge funds to go long).

Bloomberg: China Bull Who Beat 99% of All Bond Funds Says Yuan Drop Is Over

For an investor whose fortunes are tied to a currency that most forecasters warn is destined to decline, Andy Seaman is surprisingly upbeat.

The manager of Stratton Street Capital’s Renminbi Bond Fund says the shock devaluation of China’s currency in August -- and the raft of dire analyst predictions that followed -- have failed to shake his confidence. He expects the renminbi, also known as the yuan, to gain against the dollar by the end of 2016 and keep climbing in the years to come, buoyed by China’s current-account surplus, the central bank’s efforts to burn bearish speculators and foreign inflows into the nation’s increasingly open bond market.

Stratton Street: China’s capital flight overplayed

Analysts have recently warned about China's currency risks, but Stratton Street Capital fund manager and partner Andy Seaman offers a contrarian view.

Around $108bn in capital fled China in December, further depleting foreign reserves that the government has been using to prop up the RMB.

London-based Seaman, however, believes the capital flight danger is exaggerated.

  "There is some capital flight, but the authorities have [taken measures to] clamp down," Seaman told Fund Selector Asia.

He believes capital flight was only temporary and pointed to China's foreign currency reserves at the end of March, which rose for the first time in five months. Reserves were up slightly by $10.3bn to $3.2trn at the end of March, according to data from the People’s Bank of China.

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China expert: how yuan’s SDR inclusion will affect bond markets

The likelihood that the Chinese yuan is included in the special drawing rights (SDR) basket by the International Monetary Fund in November will increase demand for yuan-denominated bond fund products.

That’s the view of Andy Seaman, who runs the Stratton Street Ucits Renminbi Bond fund, and is also a partner at London-based Stratton Street Capital.

Seaman told Citywire Asia the possible yuan inclusion in the SDR basket will be a major step towards the currency’s internationalisation. The move will also require investors to adjust the weightings of yuan-denominated assets.

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Stratton Street Capital talks up RMB outlook

London-based fixed-income manager Stratton Street Capital is positive on the outlook for RMB as it anticipates that the Chinese currency will continue to appreciate against its peers in view of the country’s trade surplus and capital inflows.

Andy Seaman, fund manager and partner at Stratton Street Capital, said that the firm has been bullish on the Chinese currency ever since it established its RMB Bond Fund in 2007, which invests in Asian hard currency denominated sovereign and corporate debt.

The fund is an outperformer among its peers, beating the HSBC Offshore RMB Bond Index since its inception.

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Sovereign Bonds: A wealth of opportunity

Martin Steward spoke to Stratton Street Capital, which believes that a sovereign’s wealth determines the performance of its bond and currency markets

Homespun wisdom suggests two types of people you should not lend to: friends and family; and anyone who needs the money.

Institutional investors tend not to have to worry about the first, but they have plenty of exposure to the second. Witness the common criticism of standard bond indices: market capitalisation weighting means a bias to the most indebted bond issuers.

Stratton Street Capital is a bonds specialist that takes the relative wealth of the countries it lends to more seriously than most. But it does not focus on the debt-to-GDP ratio. Instead, it looks at net foreign assets (NFA) – the value of the assets a country owns abroad minus the value of the domestic assets owned by foreigners.  

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The rise of the Renminbi

China divides investors’ opinion like perhaps nowhere else. It is either the biggest, most important investment opportunity of the modern era, or it is a disaster waiting to happen. But, if you’re a bull, rather than access Chinese growth through the stock market, its currency provides an attractive alternative. By Andy Seaman, partner and portfolio manager, Stratton Street Capital.

The country’s possible bankruptcy should not be a concern. In net terms it is a huge creditor internationally, to the tune of $1.8trn, second largest in the world after Japan, and ahead of Germany.  The country is running a current account surplus of around $190bn a year, compared to the US deficit of $412bn a year at present, so each year China is becoming a larger creditor. As a result there are large amounts of hard currency assets that could be used to pay off debt, so foreign debt is secure.  This has led to the gradual but steady rise in the renminbi.

If we look at the experience of Japan as it became a wealthy nation, the currency appreciation was a constant theme.

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Stratton Street’s Andy Seaman sees continued challenges to Abe

Japanese prime minister Shinzo Abe’s win in upper house elections do not mean his policies are universally popular, warns Andy Seaman, partner at Stratton Street Capital.

It is quite possible that the elections over the weekend may mark the peak popularity of Japan’s prime minister Shinzo Abe. He won control (with his coalition partners) of the upper house, although perhaps not by enough to get the two thirds majority needed to change the constitution, although Abe seems keen to pursue this.

Although he won the majority, giving him a majority in both houses, turnout was low. The optimistic side of this is that the support does mean that there us a consensus that change will have to happen in Japan – true but many of the moves are still unpopular.

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Global imbalances in current accounts remain, says Stratton Street’s Andy Seaman

Andy Seaman, partner and portfolio manager at Stratton Street Capital sees continued global imbalances in current accounts, which is driving investment trends.

The large global imbalances that led to the credit crisis, and to countries having large net foreign liabilities leading to crisis, have reduced somewhat since 2008. They haven’t reversed or anything dramatic, so imbalances are still growing, but not as fast.

The big imbalance on the surplus side, now a similar size as it was in 2006-8, is the surplus of the oil producing countries, largely the Middle East and Russia. The MENA oil exporters alone are running a $400bn current account surplus, and Russia is running around a $200bn surplus.

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