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EMTA Forum in Hong Kong - October 24, 2011

EMTA Hong Kong Speakers Differ in Global Forecasts, Discuss Dim Sum Market Prospects

As Moderator Tim Condon of ING noted, speakers at EMTA’s 6th Annual Forum in Hong Kong noted a relatively wide spectrum of global economic outlooks.  The event was held at the JW Marriott Hotel and drew an audience of 100 investors, strategists and other market participants.

Johanna Chua (Citi) staked out a bearish position, recommending that investors sell into market rallies, which she viewed as being driven by short-covering.  Chua argued that a solution to the Euro Zone crisis remained elusive, because “the haircuts are too small—70 percent would be more credible-- the bailout fund is not large enough, and the plan has a lot of holes that need to be filled in.”  As a result, Chua predicted a “choppy, very volatile” 2012.

JPMorgan Asset Management’s Stephen Chang had a more constructive outlook, “…at least for the next couple of weeks.”  Hon Cheung (State Street Global Advisors) concurred, partly as a result of the optimism he was picking up from his clients.  The panel’s buy-side representatives also agreed that their fears of large redemptions were overblown, with Chang seeing new inflows from Japanese and Taiwanese accounts.

Vijay Chander of Standard Chartered’s view fell between Chua’s concerns and the cautious optimism of the buy-side speakers.  “There is a lot of cash on the sidelines, but markets will sell off once they realize the EuroZone deal represents nothing new,” he predicted, adding that it would take a series of surprisingly positive economic data from the US to convert him to a bullish stance.

While panelists’ views covered a range for the global economy, they were more in agreement in their expectation for the Chinese economy.  The speakers all acknowledged their belief of a soft, rather than hard, landing in China.

The recent 2% gap between the CNH and CNY rates had scared some out of the “Dim Sum” market, although Chander stressed that the sell-off had served the market well by leading to greater analysis by investors; “they will do their credit work going forward, which is a good thing; and it is also good that people know that the market can move both ways.”  He believed the yuan would become fully convertible within five to ten years, a view shared by other speakers.

Cheung called the CNH market a retail market, lacking the scale for institutional investors.  However, Beijing views the offshore currency as “the path to internationalizing the yuan, so the market will grow and there will be more liquidity.”

Chua challenged the conventional wisdom that full convertibility was the Chinese goal.  “The yuan doesn’t have to be fully convertible to be an SDR or a reserve currency; that might not be the endgame,” she stated.

On investor recommendations, both Chua and Chander expected a continued appreciation o f the Singapore dollar (“it could reach parity with the US dollar,” according to Chander).  Chua believed Asian equities would eventually outperform DM equities, following previous underperformance.  Chang would pursue short-term tactical trades, while emphasizing liquidity “to avoid being trapped.”  Chander thought higher taxes were likely in the US and Europe, promoting a gradual flow of funds from West to East.  Cheung expected the yuan to appreciate 5-6%.