Halister News

(Bloomberg) -- UBS Asset Management expects a mini cyclical slowdown because government’s tighter policies will slow both property market and infrastructure spending as well as reduce liquidity, Hayden Briscoe, head of Asia Pacific fixed income, says in a phone interview on Thursday.

• Sees economic growth and inflation slowing toward late 2017 and in 2018
• While over long term, current bond yields are attractive for entry, yields typically rise near quarter-end
  • UBS Asset would have “very high conviction” to buy bonds if 10-year government bond yields rises to 3.8-4%
  • With yields in range of 3.65-4%, UBS Asset recommends adding duration 
• Xi Jinping’s consolidation of power will give him more room to focus on reforms, leading to slower growth and capital appreciation in bonds
  • China may announce removal of growth target at upcoming 19th Party Congress
  • Over longer term Briscoe recommends buying government and policy bonds with view to add duration and staying away from LGFV bonds
• Sees yuan rising to 6.5 vs USD at year-end as more companies and investors unwind dollar positions
  • UBS Asset’s yuan funds have been seeing “first trickle of money coming back” beginning with corporate cash
• Watching to see if LGFV issues will cascade into a rise in defaults
• Within China credit, UBS Asset likes short-dated bank paper and strategically important SOEs
• NOTE: China’s 10-year govt bond yield has jumped 61bps this year to 3.67% on Thursday; onshore yuan has gained 5.5% to 6.5850 vs USD

To contact the reporter on this story: Justina Lee in Hong Kong at jlee1489@bloomberg.net To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net Philip Glamann