2 bits on China & Yuan in Asia
When Does a One-Off Yuan Devaluation Become a Trend? -- ANZ -- Market Talk
2257 GMT [Dow Jones] -- While it is very early days, the question of whether yuan devaluation is now a trend looks likely to become the key question for the PBoC as the second day of the new FX regime saw the yuan drop again, ANZ said in a strategy note. It is believed that the PBoC intervened heavily to mitigate the fall, something that is likely to be an ongoing feature should the market keep attempting to bolt, 2% at a time, it added. The events are tightening U.S. monetary conditions via a higher U.S. dollar that raises questions about the likelihood of a near-term Fed hike and the U.S. interest rate path. This saw the U.S. dollar come under pressure overnight. (james.glynn@wsj.com; Twitter @ JamesGlynnWSJ)
(END) Dow Jones Newswires
08-12-15 1900ET
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Yuan Devaluation Boosts Investors Betting Against Asia
China's currency devaluation is delivering a windfall to investors that anticipated a slowdown in the second- largest economy and then bet against the free-floating currencies of China's regional trading partners.
A 4% decline over two days in the yuan has hammered the Malaysian ringgit, Singapore dollar and Indonesian rupiah, among others. Many investors expect further declines across the region, reflecting likely economic weakness as China competes more vigorously in export markets.
The bet against regional Asian currencies has become one of the most popular trades on Wall Street since a nine- month-long U.S. dollar rally petered out in March. Many macro hedge funds, which make broad bets based on economic trends, unwound bets that the dollar would rise against the euro and opened fresh wagers on declines in currencies around Asia .
The investors' choice of targets reflects in part the widespread view that China's performance has been flagging following years of double-digit, investment-led growth, and in part the difficulty foreigners face investing in China .
Among those to have profited from bets against currencies in Asia is Caxton Associates LLP , which runs more than $8 billion in its macro strategy. The fund is up around 1% this month, said an investor. The fund is up 5.8% so far this year.
The macro fund at Omni Partners LLP , which runs $820 million , has risen 2.5% this month, helped by a bet against the yuan and against U.S. equities, said a person familiar with the matter. The Dow Jones Industrial Average has dropped nine of the past 10 sessions.
The gains illustrate the roundabout methods employed by many investors in playing the Chinese markets. Foreigners continue to have limited access in many cases despite recent liberalization efforts, so those seeking to bet that China's economy would slow have been forced to go elsewhere.
"People have readjusted what they're long the dollar against," said Robert Duggan , managing director at fund-of- hedge-funds investor Skybridge Capital , which manages $13.4 billion in assets. "Many have rotated into [bets against] commodity currencies and emerging markets, particularly in Asia , which has to do with China's weakening growth story."
Meanwhile, Pedro de Noronha , managing partner at London -based Noster Capital LLP , said he was profiting from having bought credit-default swaps on emerging-market sovereign debt and U.S. high-yield bonds. CDS are insurancelike contracts that can rise in value if bonds fall.
"Things aren't looking good over there," he said of China's economy.
Other funds that have been betting against Asian currencies and likely to benefit from China's move include Discovery Capital Management LLC , which manages $15 billion in assets, Tudor Investment Corp. and Brevan Howard Asset Management LLP , people familiar with the matter said. Discovery and Tudor declined to comment. Brevan didn't respond to a request for comment.
China has become an increasingly popular target for short bets that asset values will decline. But limited foreign access to the country's equity and bond markets means it is difficult to wager a bearish bet on China . Policy uncertainties could also pose a risk for such bets. During the stock-market crash, Chinese regulators restricted share sales by large shareholders.
Typically, investors and businesses wishing to bet on the direction of the yuan enter into a swap transaction with a bank. Total annual trading volumes of such swaps rose 32% to $4.49 trillion in 2014, according to the People's Bank of China .
But the market remains tiny compared with other major currencies. In 2013, the average daily turnover in the global foreign-exchange market was $5.3 trillion , in which dollar transactions accounted for 87%.
Volume in the futures market, where investors can make bets on the future direction of yuan, remains low, and the pressure that has been building in emerging markets ahead of an expected Federal Reserve interest-rate increase made the bet against other Asian currencies irresistible to many investors.
Many of the pan-Asian currencies appeared vulnerable before the devaluation. Indonesia's rupiah fell Wednesday to the weakest level since July 1998 . Indonesia's JSX, the country's stock-market benchmark, fell 5.7% over the past two sessions. The Malaysian ringgit and Taiwan dollar lost 1.5% and 2.3%, respectively, against the dollar over the past two days.
"Now, your biggest trade partner has the more competitive exchange rate, whose exports could eclipse yours," said Koon Chow , a senior strategist at Union Bancaire Privée, a Swiss private bank, which manages $3 billion in emerging-market assets.
Some funds made money as higher volatility in the yuan pushed up the price of options, which funds had bought cheaply, said Kevin Arenson , chief investment officer at Stenham Advisors PLC, which runs $3.2 billion in assets.
(END) Dow Jones Newswires
08-12-15 1900ET
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