Barings’ Fong Still Confident on Long Term RMB Trend

William Fong_Grey

William Fong, Investment Director of Asian Equities, Baring Asset Management

By Emily Lai

Offshore RMB has finally shown signs of a rebound after two consecutive days tumbling following the intervention from the PBoC. The offshore traded currency rebounded 1.2% after losing 4% in the last two days when the Chinese government set the rate of the currency well below the reference rate.  The continuous acts stirred up anxiety over RMB and caused speculation as to if the Chinese government wanted a substantial drop in the currency. William Fong, Investment Director of Asian Equities at Barings who oversees a US$ 82.1m fund on China, shares with BENCHMARK that he believes the act is an immediate response to weak exports data; but in the long run, that RMB would stabilize.

“It only comes partly as a surprise,” Fong says. “The PBoC had already said previously that the RMB trading band will expand and this signals a desire for the currency to better reflect market value. The RMB is among the strongest Asian currencies year-to-date, we have been expecting some weakening of the RMB against the US dollar, but it didn’t happen, so it’s very likely that somebody was there supporting the currency.”

However, with the much-worse-than-expected exports figure of a drop of 8.3%, the government has had to take fast action for a remedy. The second half of the year is traditionally a better time for the economy with hot exports seasons, but this year it might not be the case. “The government is probably sensing some pressure. Consumption has been dragged down somewhat by the anti-corruption campaign and the equity market tumble. The property market also has not fully recovered; so it is now down to exports. The government has to do something about it,” Fong says. “Long term, we think the Chinese government has a lot of resources to help support the economy”

Fong thinks setting the currency at 2% off the reference rate is just a small magnitude, if it really is market-driven, there would be more room for the currency to come down. Therefore, in the near term, he believes there is still room for the currency to depreciate. Selling pressure would also be seen as more people would change their RMB holdings to USD or HKD.

However, it is different if you are using a long-term strategy. “In the long run, I don’t see it as a negative move. It is just a market adjustment and I believe the currency would be more stable after the adjustment,” he says.

Fong will share more on his investment strategies on China in BENCHMARK magazine. BM