Chinese investors, jolted out of complacency by the yuan’s Aug. 11 devaluation, are chasing dollar-denominated assets to guard against currency volatility, according to Western Asset Management Co.
“People are showing more interest in owning US or Hong Kong dollar-denominated assets,” said Desmond Soon, the Singapore-based head of investment management in Asia outside of Japan at Western Asset, which manages about US$450 billion.
“Investors are concerned about two-way volatility,” he said, referring to the yuan.
Hong Kong’s currency is pegged to the greenback.
While China’s yuan appreciated more than 23 percent since a link to the US dollar ended in July, analysts predict it is to weaken 4 percent from now through the end of next year. A three-month volatility measure averaged 3.03 percent this year, the highest since the European credit crisis of 2011. The currency was trading at 6.3610 per US dollar as of 1:07pm in Shanghai yesterday.
Expectations for price swings surged after the People’s Bank of China surprised investors with the devaluation and said it would allow markets a bigger role. While the authority has cut interest rates six times in the past 12 months, the prospect of a US Federal Reserve rate increase adds downward pressure on the yuan.
“The odds probably favor further dollar strength over the coming weeks if the macro news flow continues to improve in the US and China cuts interest rates again,” said Nicholas Ferres, Singapore-based investment director at Eastspring Investments, which oversees about US$118 billion.
Yields on junk-rated dollar Chinese corporate US currency notes, mostly from the real-estate sector, have dropped 176 basis points since the beginning of September to 8 percent now, near the lowest since May 2013, according to a Bank of America Merrill Lynch index.
Future Land Development Holdings Ltd’s US$350 million 10.25 percent 2019 bonds, sold at 99.046 cents on the dollar last year, were trading at 108.4 cents in Hong Kong.
On July 31, analysts saw the US dollar buying between 6 and 6.95 yuan by the end of next year. Those estimates have become more diverse, ranging from 6.20 to 7.85, or as much as 19 percent weaker than at present.
Investors can no longer say with certainty that the yuan would appreciate, said Koon How Heng, a senior foreign-exchange strategist at Credit Suisse AG’s private banking and wealth management unit in Singapore. “They have started to take a renewed interest to hedge forward currency risks and liabilities.”
Polytronics Technology Corp (聚鼎科技) yesterday announced that it is buying Henkel AG’s thermal clad dielectric material (TCLAD) business division for US$26 million as the Taiwanese firm aims to improve its technology, product portfolio and revenue performance. Polytronics, headquartered in the Hsinchu Science Park (新竹科學園區), is a supplier of protection components and heat dissipation materials. The firm entered the metallic heat-dissipation substrate market in 2007 and developed a unique solventless production process. Its board of directors approved signing an agreement with Henkel to acquire the German chemical firm’s TCLAD division in the US. The purchase includes all assets and business interests, including equipment,
‘SENSITIVE MARKETS’: The previously unannounced project would involve the company handing over control of data to a third party to sidestep privacy concerns Google has abandoned plans to offer a major new cloud service in China and other politically sensitive countries due in part to concerns over geopolitical tensions and the COVID-19 pandemic, two employees familiar with the matter said, revealing the challenges for US tech giants to secure business in those markets. In May, the search giant shut down the initiative, known as “Isolated Region” and which sought to address nations’ desires to control data within their borders, the employees said. The action was considered a “massive strategy shift,” said one of the employees, who added that Isolated Region had involved hundreds of employees
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) yesterday posted monthly revenue that suggested second-quarter sales surpassed analysts’ estimates, underscoring how its technological lead is helping the chipmaker weather the COVID-19 pandemic and US sanctions on its second-biggest customer Huawei Technologies Co (華為). Apple Inc’s main iPhone chipmaker posted sales of NT$120.88 billion (US$4.08 billion) for last month, up 40.8 percent year-on-year and bringing its revenue for the second quarter to NT$310.7 billion, beating the NT$308.8 billion analysts expected on average. TSMC, a barometer for the industry thanks to its heft in the global supply chain, had previously lowered its revenue outlook for this
ELECTRIC FARMLAND: TSMC’s proposal to clear 230 hectares of reforested land for what would become Taiwan’s largest photovoltaic solar farm has generated concerns New rules curbing solar farms built on agricultural land sparked fierce debate at a packed public hearing at the Legislative Yuan yesterday, with industry representatives saying that the new restrictions would endanger President Tsai Ing-wen’s (蔡英文) green energy goals, while agricultural officials emphasized the importance of protecting farmers and the environment. The Tsai administration has set a target to generate 20 percent of the nation’s power from renewable sources by 2025, by which time it also aims to install 20 gigawatts (GW) of solar power, including 6GW from rooftop solar systems and 14GW from ground-mounted solar farms. Although rooftop solar systems are