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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China says it's cuttings its debts — here’s how that’s actually working

China intensified its efforts this year to contain risks coming from a long stretch of excessive borrowing, but concerns continued to mount when the country's debt didn't stop climbing.

In fact, the country's debt-to-GDP ratio grew from around 180 percent in 2011 to 255.9 percent by the second quarter of 2017, data by the Bank for International Settlements showed. Yet despite that increase, many in the global investing community are saying some concerns are overblown.

That is, risks from the world's second-largest economy have subsided as government moves to deleverage are bearing fruit, experts told CNBC. That progress will only continue after President Xi Jinping signaled greater resolve to tackle financial risks during the 19th Communist Party Congress in October, they added.

"Everyone tends to focus on the gross amount of debt ... Although China's gross debt numbers are high, the U.S. numbers are higher still, so it's not really a fair comparison," said Andy Seaman, chief investment officer at Stratton Street.

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China Credit Quality On Par With Germany, Top Fund Manager Says

China’s decision to forgo a rating for its upcoming dollar bonds isn’t fazing a top-performing money manager, who sees the securities as safe as counterparts from Germany.

For one thing, the country has lower public debt burdens than many other major economies, Andy Seaman, chief investment officer at London-based Stratton Street Capital LLP points out. China’s government debt-to-GDP ratio was 44 percent last year, less than half the U.S. and U.K. more than one-third below emerging-market peer India, International Monetary Fund estimates show.

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Will the yuan become the world’s strongest currency? This fund manager thinks so

China’s yuan is likely to become one of the world’s strongest currencies, even as concerns mount over slowing growth in the world’s second largest economy, said Andy Seaman, chief investment officer and partner at British investment firm Stratton Street.

Seaman said he was bullish on the outlook because of China’s current account surplus and large net foreign asset positions, though shifts in the nation’s exports should be expected.

China’s current account surplus – which measures the net flow of goods, services and investments – was equivalent to 1.9 per cent of gross domestic product in 2016, down from 2.7 per cent in 2015.

However the absolute sum is expected to remain sizeable because of the government’s support for high-skilled manufacturing, services and increased domestic consumption is likely to increase productivity, Seaman said.

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Mistakes made, lessons learned

Andy Seaman, Stratton Street Capital’s London-based partner and chief investment officer

Seaman’s big investment mistake came way back in 1993, but it has relevance for the investment environment today. Back then, the market had strong expectations that the US Federal Reserve was going to raise interest rates – tighten monetary policy.

However, 1993 was the time of a major bull market in bonds and interest rates had hit a record low of 3%.

“We were still running relatively long positions and we thought we could get out before the Fed tightens and it wouldn’t be much risk to our portfolio. That turned out to be completely wrong.”

Then in February 1994, the Fed surprised the market by raising rates 25 basis points. Bonds sold off and yields rose. The schedule accelerated with rate hikes in March, April, May and August. By November, interest rates had nearly doubled to 5.5% from 3% in January, resulting in a disastrous bear market for bonds.

“We got caught out by that,” Seaman said.

It was a time when he took too much risk even though he knew that the Fed was going to raise rates.

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Hong Kong’s strong wealth offsets slow population growth, says Stratton Street

Hong Kong is one of the wealthiest places in the world, providing attractive fundamentals similar to those in Switzerland, Qatar and other Middle Eastern countries for bond investments over the long term, according to London-based fixed income specialist, Stratton Street.

The city was also one of the world’s largest net creditors, benefitting from the fact that it had amassed substantial assets abroad, and implying that it could draw down on its overseas investments, Andy Seaman, partner and chief investment officer at Stratton Street said.

It is ranked second place in net foreign assets as a proportion of GDP out of 43 countries, according to Stratton Street, which screened countries based on their ability to repay debt. China is ranked 13th place.

“If you have amassed a lot of wealth over the years, then you can continue to expand production through investments,” Seaman said.

“That’s not the case if you are an indebted country that needs to offset a population that is shrinking.”

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Resilient Chinese economy appeals to foreign investors

Foreign investors are becoming more optimistic about the increasingly open Chinese market after acknowledging the stability and resilience of the country’s economy.

It is expected that in one or two years, China will attract more global investments.

The Bank of England said in a latest report that driven by domestic and global demand, China’s economy secured 6.9 percent growth in the first half of this year, which was higher than expected.

Based on the fourth-quarter growth of last year, the bank believes that China’s economy has shrugged off risks in the past two years and begun to stabilize.

Denmark’s Danske Bank noted that China’s domestic demand for real estate has managed to maintain strong growth under tightened policies, according to a latest report that included in-depth analyses on the tenacity of Chinese economy.

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Stratton Street: Question bond index weightings

“Bond indices are constructed to give the biggest weight to the most heavily indebted countries and companies, as well as countries where populations are shrinking dramatically,” Seaman told FSA.

To determine heavily indebted countries, Seaman uses data on net foreign assets (NFA) --  the value of the assets that country owns abroad, minus the value of the domestic assets owned by foreigners (chart below).

NFA is expressed in terms of percent. A negative NFA percentage measures the extent of a country's indebtedness and he limits portfolio exposure to countries with an NFA that is better than minus 50%.

Examples of countries with a negative NFA, as measured by the firm, are Portugal, Greece and Spain. In addition, the working population in these economies is expected to drop 30% by 2050.

On the flipside, there are countries that are wealthier and have rapidly growing populations above the world average. Examples of such countries are in the Middle East, such as Saudi Arabia, Qatar and the United Arab Emirates, Seaman said.

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Blackrock: Foreign inflows in Chinese bonds ‘gradual’

In March, Citi announced that it will 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.

“The inclusion automatically puts [China bonds] on a global index, where the passive money that tracks it has to go in,” said Seth, speaking at a media briefing in Hong Kong. 

He believes it will take 12-18 months for a majority of fund managers to adjust their allocations to China bonds and be reflected in the percentage of foreign inflows. 

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Trading bonds in China? You might want this chat app for millennials

SHANGHAI (Reuters) - A new scheme that connects China's local bonds with Hong Kong promises to open the country's $9 trillion (7 trillion pounds) debt market to global investment - but investors venturing into the mainland are coming to terms with the massive community that does business not on trading platforms, but social chat apps.

The "Bond Connect" programme launched this month allows international investors to buy and sell in China’s historically restricted interbank bond market through a Hong Kong trading gateway, and has been hailed as a milestone in the opening up of the country’s capital markets.

On the mainland, however, much of the turnover in the bond market is generated from informal chat groups on QQ, a mainstream Chinese mobile chat app, where individual investors look to buy, sell, borrow and lend.

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Bond connect seen to help foreign investors access China debt market

The newly-launched China-Hong Kong Bond Connect is expected to facilitate the internationalisation of China’s fixed income market with more foreign institutional investors using it to access Chinese debt, according to asset managers.

The bond connect, which went live on July 3, allows foreign investors to invest in China’s onshore market via Hong Kong in the so-called northbound trading.

Charles Li, chief executive of the Hong Kong Stock Exchange (HKEX), says in a statement that “the bond connect will give Hong Kong a bigger role in fixed income, expand our mutual market programme from stocks into a second asset class and give us a good foundation for further development in fixed income and currency.”

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China’s Bond Connect launches

China launched its long-awaited Bond Connect programme on Monday, offering international investors access to its $10 trillion debt market via Hong Kong.

During the initial trial phase, only northbound flows from Hong Kong into China will be allowed. No date has yet been set for southbound flows. The programme will replicate two previous ‘Stock Connect’ initiatives, linking Hong Kong with bourses in Shenzhen and Shanghai. Hong Kong’s legal system is trusted by international investors, and the Special Administrative Region has no capital controls, unlike the mainland.

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Global investors optimistic about China’s growth

As China continues deleveraging the financial system, many international institutional investors believe that the process and stable economic indexes will fend off a free fall.

The Bank of England says that the Chinese economy saw better-than-expected growth in the first quarter, laying a solid foundation for the nation to reach its 6.5-percent target.

According to a report from the European Central Bank in May, emerging markets, especially China, were showing positive changes since the second half of 2016.

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