Yuan's drop aligns it with China's cooling economy, easier policy

SHANGHAI/HONG KONG (Reuters) - A surprising rally for China’s yuan over the turn of the year has been cut short by widespread expectations that Beijing will ramp up policy easing in coming months to avert a sharper economic slowdown…

… Andy Seaman, chief investment officer at Stratton Street in London, is long the yuan, even though his fund mainly buys Chinese dollar bonds rather than the domestic ones.

He says the yuan’s fundamentals do not justify its weakness and it was weak only because of the dollar’s broad strength.

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Despite headwinds, China's onshore bond market attracts investors

In spite of headwinds China faces from a weaker currency and a trade war with the US, its onshore bond market has remained a draw for foreign capital, thanks to the bond connect channel that allows investors in Hong Kong and the Mainland to trade in each other’s markets…

…According to Andy Seaman, partner and chief investment officer of London-based fixed income manager Stratton Street, bond connect “has to be considered a major success now that the number of international investors (for the programme) has broken through the 400 mark”.

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Market Views: How low could the renminbi go?

Down about 9% against the dollar since April but trading between Rmb6.80 and Rmb6.90 over the past two months, what next for the renminbi? We asked six experts for their views.

Andy Seaman, chief investment officer (London) Stratton Street

‘We think it’s unlikely that the renminbi will depreciate from here for a number of reasons. Firstly, the Chinese authorities have made it very clear they do not intend to weaken the exchange rate to offset the tariffs. From a fundamental perspective the currency is well supported with the relative current account positions strongly in China’s favour’.

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Bond Connect implements DvP settlement

The much anticipated real-time delivery-versus-payment (DvP) upgrade for Bond Connect has now been fully implemented, with all transactions now trading via the new settlement.....

According to Andy Seaman, partner and chief investment officer at Stratton Street, the lack of a true DvP is one of the reasons regulators in Luxembourg and Ireland had not given approval for Undertakings for Collective Investment in Transferable Securities-compliant funds to buy Chinese bonds.....

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Foreign funds keep pouring into China despite the yuan's jitters

The sharpest decline of China's yuan since a turbulent devaluation in 2015 hasn't fazed international bond funds, suggesting their diversification flows will be a useful stabilising force for the nation's policy makers .....

..... That's the bet of Andy Seaman, chief investment officer at Stratton Street Capital LLP. Stratton recently increased its exposure to the yuan, anticipating that rising productivity will help keep China's current-account surplus in tact for the long haul.

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Fixed maturity products lose lustre as rates rise

Today, Lee is not putting any client money into FMPs and is instead looking for very active bond fund managers. ‘I looked at one FMP with a three-year duration. It was predominantly investment grade. The return was 2.8% to 3%, but to me, I’m taking a leap of faith in a manager being proactive. At the same time, the returns are somewhat diminishing as interest rates increase.’

He named two asset managers that he currently works with – Stratton Street and Silverdale Fund Management.

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Will Stratton Street’s RMB fund draw mainland money?

As China further relaxes capital controls, the demand for renminbi-denominated investments outside the mainland should grow, argues Stratton Street’s Andy Seaman.

Seaman co-manages the Stratton Street Renminbi Bond Fund, which invests in bonds in Asia and the Middle East and hedges all positions into RMB. He expects recent moves to open China’s financial industry to benefit his strategy.

China’s authorities will be forced to further relax the restrictions on capital flows out of China, according to Seaman, to balance the inflows of foreign investment that are expected as A-shares and Chinese domestic bonds are incorporated into global indices.

The process of A-shares inclusion is well underway, and inclusion of bonds is expected to follow. Bloomberg announced in March that it will add Chinese RMB-denominated bonds to the Bloomberg Barclays Global Aggregate Index, in a gradual process, starting in April 2019.

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Four rated managers clash over approaches to Asian bonds

Many western investors equate Asian fixed income with the internationalisation of the Chinese bond market. While China’s effort to open up its debt markets to international investors is too big to ignore, the focus on a single development in the region’s fixed income story does a disservice to what has become a varied and challenging market...

...Looking at positioning, Seaman, who runs the Stratton Street Ucits Renminbi Bond fund, says there are two ways to play China. The first is through strong dollar bonds in the investment grade space. The second is via the currency, which has performed strongly over the past year despite the market expecting the opposite...

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Get Back Into Bonds, Inflation Not Coming, Unrepentant Bull Says

For some, U.S. 10-year yields piercing 3 percent is just the latest evidence of the end of the decades-long bull run in bonds. Others say it’s a great re-entry point, because fears about a break-out in inflation are overblown.

One unrepentant bull is Andy Seaman, chief investment officer at London-based Stratton Street Capital LLP, which says it manages about $1.5 billion. Much as Japan’s experience has shown how demographic trends can contribute to weak price pressures, Seaman sees low fertility rates and expanding ranks of the elderly across the world putting a lid on inflation.

That all means investors should buy duration -- that is, longer-dated bonds, Seaman argued in an interview while visiting Hong Kong earlier this month.

“There are a huge number of countries that going to have smaller populations, so it seems unbelievable in my mind that anyone thinks inflation is around the corner," Seaman said. "What do you think is going to happen to interest rates, inflation and growth -- it’s going to fall.”

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Foreign firms peck at China’s $9trn bond market

Despite the inclusion of onshore bonds on some global indices, portfolio managers have taken minimal exposure to the onshore bond market, citing the payment settlement issue as a key obstacle...

... Andy Seaman, partner and CIO at Stratton Street, added that his firm hasn’t bought Chinese onshore bonds due to the DVP system. The delay between bonds being delivered and cash being received of even a few hours is not a true DVP system.

“So neither the Luxembourg nor Irish regulators allow Ucits funds to buy Chinese bonds via Bond Connect.”...

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China onshore bonds attract foreign investors

China’s effort to liberalize its bond market are expected to open opportunities for global investors.

The onshore market could see foreign ownership doubling from a current level of less than 2%...

Andy Seaman, partner and chief investment officer at Stratton Street, said China’s foreign ownership of its onshore bond market is pale in comparison when compared with the US, where foreign ownership represents about 60% of its onshore bond market.

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Guernsey funds market to benefit as managers look at new structures

Guernsey’s investment industry should see a benefit as managers move to establish more parallel funds in response to investor demand. That was the consensus among panellists at the recent Guernsey Funds Masterclass in London.

Concerns about regulation and increasing costs of popular UCITS funds in Europe are driving managers to consider setting up duplicate structures outside of Europe, and Guernsey is well-positioned to accommodate that demand.

Andrew Seaman, Executive Partner and Chief Investment Officer at Stratton Street Capital, has already made a similar move. He said that managers had to respond to investor concerns about increasing costs. His company launched a Guernsey-domiciled Renminbi bond in 2007 and followed it with a UCITS version in 2013.

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Restart of QDLP, QDIE may hint at Bond Connect inflows

China has reportedly reopened the two schemes. This could mean Ucits funds are close to Bond Connect approval and that QDII is set to return, says Andy Seaman of Stratton Street.

Two Chinese outbound investment programmes that had been frozen for two years have reportedly restarted, in a long-awaited easing of capital controls by the mainland authorities and a possible indicator that big investment inflows are expected.

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Why Fund Firms Are Gunning for China

Aries Tung is a numbers guy. The head of strategy and business development for UBS Group’s asset management unit in China, Tung set up a private fund business there last year despite already having a mutual fund company under a Chinese joint venture... 

Since 2015 foreign investors have had direct access to Chinese equity markets through an equity trading program known as Stock Connect, which links the Hong Kong Stock Exchange with the Shanghai and Shenzhen exchanges... A similar program known as Hong Kong China Bond Connect allows foreign investors to access China’s fixed-income market, which Stratton Street Capital estimates at $10 trillion, the third-largest in the world after the U.S. and Japan.

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Yuan appreciation: what it means for China-UK trade

British Prime Minister Theresa May made an official visit to China last week, and the timing of the visit could not have come at a more opportune time, says Andy Seaman, partner and chief investment officer of Stratton Street. 

Seaman told Citywire Asia that the UK economy is going to need to develop strong trade relationships with numerous countries post Brexit, and China arguably is the most important of all.

During May’s visit, Chinese President Xi Jinping agreed to hold a new trade and investment review with the UK. This is perceived as a stepping stone towards delivering a full free trade agreement after Brexit.

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Hong Kong’s dim sum bond market seen bottoming out amid rising yields, strengthening yuan

Western Asset Management, which manages US$442 billion, has been adding to its portfolio of dim sum bonds because of its positive view on the yuan.

A modest recovery in Hong Kong’s dim sum bond market is likely this year as yields rise to attractive levels after the deleveraging efforts by the People’s Bank of China and rapid appreciation of the yuan in recent months, say analysts. Activity could increase further if internationalisation of the yuan accelerates, they added....................

Dim sum bonds, which can bypass onshore regulations and tax implications, will probably still be the first stop for US and Hong Kong-based investors, according to Stratton Street.

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Renminbi set to continue 2-3% appreciation versus dollar

The renminbi can continue to appreciate by 2-3% a year, providing an attractive kicker to returns, according to Andy Seaman, CEO and executive partner Stratton Street.

Seaman (pictured) co-manages the firm’s Renminbi Bond fund, which just passed its 10 year anniversary late last year. The timing of the launch proved prescient, with the Chinese currency going on to become the second best performer against the US dollar, after the Swiss franc, over the last decade.

The $275 million (£206 million) strategy was born out of a hedge fund and since inception on 30 November 2007, it has gone on to deliver annualised returns of 9.1% net of fees and a total return of 138.5%.

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AllianzGI likes Chinese bonds as hunt for yield continues this year

Allianz Global Investors is considering buying Chinese sovereign bonds because the government’s efforts to curb excessive lending in the financial sector has pushed up interest rates and bond yields to attractive levels.

David Tan, Asia-Pacific chief investment officer for fixed income, cited the strength of the yuan as another favourable factor.

Unless there is a sharp spike in inflation expectations, the consensus is for the US Federal Reserve to raise interest rates three times this year, with Treasury yields staying below 3 per cent.

China’s 10-year government bond yield is stabilising at about 4 per cent after surging 85 basis points last year. That compares with yield returns on 10-year government bonds of just 2.61 per cent in the US, 0.03 per cent for Germany and 0.08 per cent for Japan.

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Fund Manager: China’s Bond Market Is Set to Boom

China’s renminbi bonds, which make up only 1.8 percent of global debt capital markets today, could become a far more significant asset class in the years ahead as the nation continues to widen access to foreign investors, says a leading London-based bond fund manager who made his name starting Europe’s first renminbi bond fund back in 2007. 

Chinese authorities launched the China Hong Kong Bond Connect program via the Hong Kong Exchange last July, allowing foreign investors to have direct access to China’s $10 trillion domestic bond market — the third largest in the world after the U.S. and Japan — for the first time.  The program is only six months old but already has allowed foreigners to own a tiny chunk of China’s debt capital market, according to Andy Seaman, a partner and chief investment officer of Stratton Street Capital. 

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