From: Economic Observer reported by Wang Zhihao(Standard Chartered Bank Senior Economist)
Compiler: Fund China

Many of fund A-shares that valuation is too high, early this year, the clearing.

Top of the world of hedge funds on the Chinese market perception is what? Last week in London, I spent two days with 10 large hedge fund managers interviewed, Their size of the funds from 2 billion U.S. dollars to 10 billion U.S. dollars range. Due to the Standard Chartered Bank in China, including a number of emerging market operations. Therefore, we have become these hedge funds happy to meet the target.

Understanding of their views is crucial. They vertical universally influential 1999 — Today, the idea of regular market will quickly become the orthodox. These fund managers are extremely intelligent, knowledgeable and well-informed (of the Chinese market has become very familiar with, Some people frequently come), and they are also extremely happy expression and argument.

Overall, my point is that China today is the story — high growth, low inflation and continued for at least another year or two. The minority view on the skeptics and the rest were agreed.

People in the perception of the economy is generally on the global economic trend of view. If you are interested in the Chinese economy, then you also have reason to believe that global economic growth prospects are bright, that the global economy as it did in the past few years — strong growth, the financial market is a high-risk preference, low credit spreads, moderate dollar has been weakening, the United States Bonds remained at a lower level. Conversely, if you think that China’s economy is facing a recession and (or) the inflation rate, you will most of the global economic outlook pessimistic. Most of this meeting Fund stood before a mostly camp. Their economic situation and prospects of a large number of issues.

First, these hedge funds on China’s current inflation situation is very interested. Alone on this issue I talked with them a long 45 minutes. They reason for China’s keen interest in the issue of inflation one of the reasons is that there is the view that China’s current show of “exporting deflation” — the overall export prices are still down, This means that the United States and the European level of inflation suppression by the Chinese, it also implies that G3 central bank (Federal Reserve Board, The European Central Bank and the Japanese Central Bank and the central bank called G3) can maintain low interest rates. Once China’s export goods prices have started to rise, and the Federal Reserve and the European central bank would have to raise interest rates. This global bond market, emerging markets and American consumers will have a tremendous impact.

Hedge funds on China’s inflation situation of great concern, the majority of them think that this is indeed a problem. Moreover, Chinese inflationary pressures continue to increase inevitable.

We think some of these concerns exaggerated. We think in the next two years, the progress of labor productivity in most sectors will bring the price down. Two years later, 35 is away, with the slowdown in the pace of increased productivity, greater cost pressures will occur. This also means that the export prices will go up. Of course, the magnitude of the problem depends on China will have a global impact on the inflation rate and intensity determined. Perhaps then manufacturing factories in India blossom everywhere, and perhaps not. Other countries of the overseas investment policy will also affect the withdrawal of the manufacturing sector in China’s speed, and the global inflation levels.

These funds interested in China’s inflation Another reason is that Some of them are in the market for offshore yuan non-principal delivery rate swap transactions. In such transactions offshore market is extremely active. Transactions based on the basic principles of the judgment on interest rates, if you think interest rates increase, you can pay a fixed rate of interest, access to floating interest yield, which is currently part of the hedge fund practice, because they think inflation will force the central bank raised interest rates again. However, such transactions excellent momentum in recent days heat bit.

Establishment of the foreign investment is only inflation hedge fund’s interest piont.

They want to understand the structure, funds managed by the amount of 200 billion U.S. dollars or more? More importantly, it’s investment objectives. So I am interested in is the right hedge fund, the answers to these questions.

Most hedge funds that foreign investment each month will prompt access to new funds (although we do not think so). Most of the funds that if the new Exchange Fund wants to get a higher income, will concern emerging market bonds and stocks. Most hedge funds accordingly particularly promising in Asia. Of which 23 foreign investment funds to speculate that the Chinese company will reduce the national debt to the United States bought the volume, therefore feel that the dollar has sold a reason. We uncertainty that is true or not, but it certainly will be the global financial markets facing a major challenge, but If U.S. dollars of assets to sell more to the weakening of the dollar, would bring China very risky.

Many of the funds that the dollar is undergoing a structural bear market which — in the medium term (the next two to three years) are pessimistic about the dollar exchange rate. The reason, the federal government and American consumers of high debt is on the one hand because, in addition to a huge U.S. trade deficit. But looking at the short term, to be formed by the National Foreign Exchange investment company has increased awareness of the dollar’s worries.

Another one of the interesting things is that the two fund managers on emerging markets can absorb huge amount of investment in doubt. Even the country’s foreign exchange investment company controlled only 200 billion U.S. dollars. for the 200 billion U.S. dollars in bonds outside the United States to find a way out of the market also requires a long period of time.

Able to feel that the hedge funds to China is very fascinating, although they are not direct transactions. Some have QFII quota from the bank to buy the hands of the amount, and invest in A shares. However, it seems that many funds that the A-share valuations are too high, early this year, the clearing. Of course there are also optimistic about Hong Kong equities funds, particularly in the QDII scope to relax, overseas investment of insurance funds, such as the imminent release under the good news. Most hedge funds will actively participate in the non-NDF transactions (NDF) market, It is their participation in the yuan transaction shortcut. As capital market gradually opening up, China’s hedge funds will only increase the interest.

Copyright Fund China 2009.

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