Money managers keep bets on a rising yuan

The Wall Street Journal
05 Apr 2012
Two of the world's largest fixed income managers still are betting on the Chinese yuan to appreciate this year, despite worries that China's economy will experience slower growth.

Both Joel Kim, head of Asian-Pacific fixed income at BlackRock, and Ramin Toloui, global co-head of emerging markets at Pacific Investment Management Co, or Pimco, on Wednesday said they expect the yuan to appreciate as much as 3% this year. Kim tipped gains of 2% to 3% annually for the next couple of years, while Toloui forecast a 1%-to-3% increase this year. BlackRock manages about $3 trillion, while Pimco has more than $1 trillion under management.
That rate of appreciation would mark a slowdown from last year's 4.7% gain. Some market participants think China will slow or even stop the gradual appreciation of the yuan, also called the renminbi, that began in June 2010 to lessen the effects of slower growth. China cut its 2012 growth target in March to 7.5% from 8%. Toloui said he thinks China will expand in the upper 7% area in the coming year.
China's central bank fixes the level of the yuan daily to other currencies, such as the dollar and euro. The bank then allows the currency to trade in a range around its peg, which is set at 6.2943 yuan to the dollar.
"[The yuan] may be a bit more volatile, but the longer-term direction is quite clear," Kim said in an interview.

Kim said BlackRock also expects appreciation for other Asian currencies, including the Korean won and Sinaporean dollar. Despite the potential for an occasional "hiccup" in investors' appetite for emerging market currencies and other higher yielding assets, Kim said most central banks in Asia had completed moving away from looser monetary policies adopted last year and had better growth prospects than developed markets.
On Tuesday, Cecilia Chan, chief investment officer of fixed income for Asian-Pacific at HSBC Global Asset Management, said she expects the Chinese currency to be relatively stable in the near term and appreciate in the longer run.
Chan said offshore yuan bonds would remain an attractive investment.
Despite the growth expectation, Pimco's Toloui said near-term appreciation for the yuan is likely to be lower than it has been in the past. He said aggressive expansionary policy was unlikely as Beijing manages a dual soft landing: in demand and production, and in the financial sector. Longer term, however, that slowdown would do little to keep the currency from gaining. "Our view is that on a fundamental basis we are still in the early stages of the Chinese renminbi appreciation story," Toloui said.

Corrections & Amplifications
An earlier version of this story incorrectly said in the sixth paragraph that BlackRock added to its positions in other Asian currencies.
Write to Natasha Brereton-Fukui at natasha.brereton@dowjones.com
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