Fortress Bullish on Yuan, Chinese Stocks on Stimulus Bet
Fortress Investment Group LLC (FIG) turned bullish on China’s yuan and equities, after betting on declines earlier in the year, as it predicts the government will arrest a seven-quarter slowdown in the world’s second-largest economy.
China showed signs of “stabilization and modest improvement” last month and pro-growth measures are likely once the nation’s new leadership is appointed in November, Adam Levinson, chief executive officer of the hedge fund’s Singapore unit and manager of its Asia Macro Fund, said in an interview yesterday. Fortress manages $47.8 billion of assets globally.
“We covered our positions related to Chinese shorts and are turning the other way,” Levinson, 42, said in a conference room at the fund’s office in the Southeast Asian city. “Policy makers are more likely to do something in the near term.”
Levinson’s shift comes at a time when the most accurate forecasters for China’s currency and equities predict declines. A report tomorrow may show gross domestic product growth slowed to 7.4 percent last quarter based on a Bloomberg survey of economists, underscoring the tasks for the government after the Communist party’s once-in-a-decade leadership transition.
The yuan touched a 19-year high of 6.2530 per dollar today. The currency will slip to 6.3 this quarter, according to Credit Agricole CIB and BNP Paribas SA, which had the best estimates for the last six quarters as measured by Bloomberg Rankings. Haitong Securities Co. strategist Chen Ruiming, who correctly predicted on Aug. 1 the stock index would fall below the 2,000 level, said this month the measure is poised to drop to 1,800 this year.
The 12-month non-deliverable yuan forwards climbed 0.07 percent to 6.3543 per dollar in Hong Kong, a 1.5 percent discount to the onshore rate, data compiled by Bloomberg show. The discount widened to as much as 2 percent on Oct. 3.
The Shanghai Composite Index tumbled 15 percent from its 2012 high to 2,086.17 on Sept. 28, the most among benchmark equity gauges in 21 developing nations tracked by Bloomberg. The index rose 0.2 percent to 2,103 today.
China’s exports and money supply grew more than forecast in September, while home prices rose for a fourth month, official figures show. Total social financing including loans, bond and stock sales jumped 33 percent to 1.65 trillion yuan ($264 billion) in September from August, according to data from the People’s Bank of China.
“Weeks ago, the forwards were pricing in a reasonable depreciation and people were very negative because the export channel was weak,” said Levinson. “The currency was likely to weaken in line with that. We see that adjustment and we will continue to see expectations around the currency re-priced through year-end.”
Yuan to Gain
The yuan’s strength will continue this year, he said without giving a forecast.
“We are going to have a lot of information in the next six to seven weeks including the configuration of the new leadership,” the fund manager said. “We are very clear about this quarter and we may extend our longs into next two quarters. It’s a cyclical story.”
Levinson, who joined Fortress in 2002, serves on the firm’s management committee. He was previously a fund manager at Paul Tudor Jones’s Tudor Investment Corp. and a proprietary trader at Goldman Sachs Group Inc., spending nine years in the bank’s Hong Kong, Tokyo and London offices managing portfolios focused on Group-of-10 and emerging-market risk, according to an October statement from the company.
The Fortress Asia Macro Fund handed investors a net 10.7 percent return as of end-September, according to its statement. That compared with 2.2 percent gain in the Eurekahedge Index that tracks 205 macro funds worldwide.
Levinson said his fund likes Chinese banks, property companies and some infrastructure stocks. Fortress also favors government bonds from Malaysia, South Korea, Thailand, and India that continue to receive “very powerful flows” from investors including sovereign funds, he said.
Emerging-market bond funds have attracted $41 billion this year through Oct. 10, compared with the $17.3 billion for all of 2011, according to data research firm EPFR Global. Malaysia, South Korea and Thailand count China as the top destination for their exports.
India’s sovereign debt is attractive as the nation’s central bank is likely to succeed in cooling inflation “over the course of next year,” Levinson said. Asian central banks will probably lower borrowing costs to counter slower growth, which will benefit government debt, he said.
“Asia generally is unlikely to surprise significantly in growth upside,” he said. “So Asian fixed-income markets remain very attractive. It’s a premature call to end the easing cycle.”
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