Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
ôThe broader currency trend in 2007 will be dollar weakness, but a modest weakness,ö says Woolfolk during a trip to Hong Kong. ôOn the other side, what weÆre seeing is a more US-friendly and accommodating central bank in China.ö
This rationale has been buoyed by comments yesterday by Zhou Xiaochuan, regarding next weekÆs visit to China by Henry Paulson, US treasury secretary and Ben Bernanke, chairman of the US Federal Reserve. According to Zhou, the Chinese government will ôrespond positively and activelyö during the visit next week and the countryÆs currency regulator is keen improving management of capital flows so that it can let the market set the renminbiÆs exchange rate.
ôWhat weÆre hearing from the PBoC is that [China] is looking to enhance the strategic relationship with the US, that they are setting targets for economic growth and looking very closely at the balance of international payments,ö says Woolfolk.
Although a move from the yesterdayÆs USD/RMB exchange rate of 7.835 to BoNYÆs 2007 projected 7.4 would likely satisfy many in the US, quick liberalisation of the Chinese currency could have regional impacts, notably on the yen/renminbi cross, which may impact the regional balance of economic power.
ôChinaÆs current currency policy is not a major problem other countries like it is for the US,ö he says. ôThe Chinese authorities have been rightly conservative. Some of the clients we talk to in Asia are concerned that the exchange rate might become a struggle between the US and China, but we see this as unlikely. We see the RMB at 7.4 as a fair and workable rate.ö
Woolfolk expects that a weaker US dollar will have an effect on other global currencies. The bank has the house view that the euro will widen to 1.36 dollars by the end of the year, while the yen/dollar rate will be at 107. Over the course of next year, however, the yen should strengthen.
ôWe see the Yen returning to its fair value in the coming 12 to 18 months, as interest rates will normalize,ö says Woolfolk. ôWe see ourselves as more hawkish than other banks regarding Japanese monetary policy, and expect the Bank of Japan to move interest rates by 100-200 basis points. With our view of a weaker US dollar and more normalised interest rates in Japan, a dollar/yen exchange rate of 100 will happen in the not too distant future.ö
Insto roundup: FWD files for ADR listing in New York; Nippon Wealth Life fully acquired by parent firm
Intrust Super chief executive to step down after merger; Aware acquires site for essential worker affordable housing; China bans cryptocurrency-related business activities; Hong Kong insure FWD filed for US listing of ADRs; Nippon Life acquires wealth life insurance from MassMutual; NPS to hire five investment managers to diversify portfolio; Malaysia to review Spacs framework; EPF reports $8 billion investment income; and more
Hesitancy aside, institutional investors eye Australia and Japan as promising geographies for private debt investments within Asia Pacific, with Greater China and Korea on the periphery.
While Asia still lags the global average, interest in sustainable projects is growing fast; the only thing needed now is the expertise to drive growth
Regulators keep their eyes open on tightening insurance industry by introducing more detailed risk management requirements, which could bring pressure on smaller players.