Aussie Shorts Lure Ex-UBS Trader’s Hedge Fund as China Slows

MST Capital Pty, a hedge fund run by former UBS AG trader Gerard Satur, is betting the U.S. dollar will strengthen against the currencies of Australian and New Zealand as China’s economy slows.

The macro fund, which is also positioned for gains in the greenback versus the Swiss franc, has returned 4.5 percent in the past six weeks due to its trades in currencies, equities and interest rates, Satur, the chief executive officer of Sydney-based MST Capital, said in an interview.

The U.S. currency will extend gains as the Federal Reserve prepares to raise interest rates amid an improving economy, Satur said. Cooling growth in China, the largest trading partner for Australia and New Zealand, will weigh on the two nations’ currencies, he said. The Aussie is poised to drop toward 80 U.S. cents, the weakest since July 2009, while the kiwi may slide to a four-year low of 70 cents, he said.

“We are very concerned about the fact that people are too complacent on China,” Satur said by phone yesterday. “The China effect is not really fully factored into these currencies.”

Australia’s dollar, the worst performer after Brazil’s real and the yen among 16 major currencies this month, slumped today to the weakest level since July 2010. The price of iron ore, the nation’s largest export, fell to the lowest in more than five years this week as China ordered some steel mills to cut production. China is the world’s biggest user of ore.

Subdued Economy

The Reserve Bank of Australia said today the nation’s economy is set to remain subdued and warned Japan’s monetary policy could spur flows that support the local dollar. The currency “remains above most estimates of its fundamental value,” it said in its quarterly monetary policy statement.

Satur previously led the only team of traders at UBS with a global mandate to make bets on macroeconomic trends. He left the Zurich-based bank along with his colleagues in 2012 to start up MST Capital as regulators put limits on risk taking following the global financial crisis that started in 2007.

The hedge fund added to positions at the end of October that will benefit from gains in the U.S. currency against the Aussie, kiwi and franc after profiting from the same bets made in September, Satur said.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, is heading for a fifth monthly gain and has risen 7.7 percent this year, the most since 2008.

The Aussie has weakened 2.4 percent in November and dropped as low as 85.41 cents today, before trading at 85.84 cents as of 8:13 a.m. in London. The kiwi, which has fallen 1.2 percent this month, was little changed today at 76.94 U.S. cents.

Currency Sales

A 50 percent slide in milk powder prices since February along with benign inflation has fueled speculation the Reserve Bank of New Zealand will delay interest-rate increases. The central bank said on Sept. 29 it sold the most New Zealand dollars in August in seven years to weaken the currency.

“The RBNZ has been aggressive in its stance on the currency being overvalued,” Satur said.

China’s economic growth slowed to 7.3 percent in the third quarter, the least since the first three months of 2009, as cooling industrial output and moderating investment added to a slumping property market. Economic growth will ease to 7 percent next year, according to a Bloomberg survey.

China Risk

There’s a risk China’s economy may slow to between 4 percent and 5 percent, Satur said. The property slump may dent growth as the country moves to a more consumption-driven economy, reducing its reliance on capital investment, he said.

MST Capital made bets last month that Japanese stocks, which appeared oversold, would rally, Satur said. The Nikkei 225 Stock Average has jumped 7.8 percent since Oct. 30, the day before the Bank of Japan unexpectedly boosted monetary easing. The yen weakened beyond 115 per dollar yesterday for the first time since 2007.

Japanese investors are set to flock to U.S. assets because of the strengthening dollar and expectations of higher yields, Satur said.

His fund gained 3.45 percent in September, the best month since its inception, according to a note to investors published Nov. 3. It had lost money in six of the previous eight months.

“It’s been a volatile period,” Satur said. “Overall, it’s been a tough year for macro.”

Before it's here, it's on the Bloomberg Terminal.