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This world-beating fund manager reckons China's currency rout is over

Photo: Kevin Frayer/Getty Images.

If you’re betting on further weakness in the Chinese renminbi, perhaps you should think again.

On the back of China’s massive current-account surplus, efforts from the the People’s Bank Bank of China (PBOC) to deter speculators from adding to bearish bets and increasing foreign inflows into China’s bond market, the currency, also known as the yuan, looks set to strengthen in the years ahead.

That’s the non-consensus view offered by Andy Seaman, manager of Stratton Street Capital’s Renminbi Bond Fund, who believes that the renminbi rout that has rattled financial markets over the past six months is now all but over.

“Even though people still talk about a negative story, it’s not happening,” Seaman told Bloomberg.

While only the view of one man, Seaman has form when it comes to taking advantage of early market moves involving the China’s currency. Stratton’s renminbi bond fund has returned on average 9.5% per annum in US dollar terms over the past five years, beating 99% of the more than 14,000 fixed-income funds currently tracked by Bloomberg.

An exceptional result in anyone’s language, and one that adds clout to his view.

Though Seaman does not offer specific forecasts for the USD/CNY exchange rate, he expects the renminbi will strengthen two to three per cent each year over the next few decades, pointing to the nation’s low foreign debt levels, its large current-account surplus, growth in offshore investment into mainland bonds and the potential for continued US dollar weakness as supportive factors.

After a prolonged period of strength in recent years, the US dollar has weakened modestly in recent months, helped in part by lowered expectations for interest rate increases from the US Federal Reserve in 2016. Should the recent decline in US dollar see sentiment towards the outlook for the renminbi also reverse, Seaman suggests it will likely lead to further renminbi strength.

“There’s a pent-up demand for renminbi. So the more the renminbi appreciates the more exporters are likely to start converting, which will drive the currency higher,” Seaman told Bloomberg.

“The market rhetoric encouraged exporters not to repatriate those dollars, but what it means is they’ve got a build-up of dollar assets, which they will convert at some point.”

Foreign capital inflows, something that may accelerate given the decision from Chinese policymakers to remove quotas to invest in China’s interbank bond market and eased rules on securities investment programs for foreigners, will also benefit the renminbi in Seaman’s view.

“Once people wake up to the idea that they can access the world’s third-largest bond market, there’s going to be quite a significant move into renminbi assets,” he says. “There needs to be a big adjustment at some point. It’s a question of when, not a question of if.”

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