HALISTER1: Yuan Stability Key Before Committing to China Bonds: Legg Mason

Yuan Stability Key Before Committing to China Bonds: Legg Mason

(Bloomberg) -- “We need to see more currency stability and transparency in the FX regime before a larger commitment of our clients’ money to the market,” says Desmond Soon, head of investment management Asia ex-Japan at Western Asset Management, a subsidiary of Legg Mason Global Asset Management.
  • Consensus is for yuan to depreciate modestly over next 2 years, but depends on broad USD trend, Soon says in interview
    • Yuan depreciation vs trade basket “is largely done”
    • NOTE: Yuan has depreciated 4.8% vs dollar in past year; down 7.3% in REER terms in 12 months through Aug.
  • SDR inclusion on Oct. 1 indicates yuan bonds will become mainstream
  • Onshore Chinese bonds offer good diversification for pan- Asia portfolios; prefer bonds issued by govt, policy banks and top SOEs
  • Major index providers will likely increase China’s weighting gradually; don’t expect sudden inflows in couple of months
  • Will probably increase allocation if major developed market indexes substantially raise China’s weighting
  • SDR Preview: Fund managers prepare for greater access to onshore bonds
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Desmond Soon (Western Asset Management Co)

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