• The Fund’s ID USD Class gained 2.04% in December, up 16.19% for the year
• US Fed hikes interest rate by 25bps to 1.25%-1.50%
• Offshore renminbi (CNH) up 1.59% versus USD in December, and +7.09% ytd in spot terms
• An extra 4.70% was added to returns from the carry of buying CNH forward
• China looks for quality growth over pace of expansion
The Fund performed well in December, the ID USD Class gained 2.04%; performance for the year was +16.19%.
The Fed’s well publicised rate hike did little to upset markets last month. The bigger news, however, was the passing of the US tax bill; where corporation tax was sliced to a permanent 21% (from 35%) and a number of less permanent tax breaks for individuals were introduced. There is no doubt, however, that this debt-financed tax overhaul will lead to an increase in the country's already huge budget deficit; so it will be interesting to see if a predicted spike in growth, forecast to be 2.5% in 2018, would help counter the ~USD1.5tn borrowing over the next 10 years. US Treasuries sold-off after the news broke, eventually closing the month relatively unchanged at 2.406%. Also of interest was the US Treasury yield curve flattening, which saw the spread between the 2-year and 10-year benchmarks fall to decade lows during the month, and the spread between the 5s30s tightened to 10-year lows on the penultimate trading day. Meanwhile, the dollar retreated further, with the DXY Index falling ~1% in December; closing the year almost 10% lower.