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Asia Pacific Intelligence

Stratton St Capital remains cautious on Aussie dollar post election

Tuesday, October 01, 2013

Two big changes in the Asia Pacific region are engaging the attention of Andrew Main, managing partner of Stratton St Capital. The first is the Australian election, bringing a change of government with the election of Tony Abbott, ultra conservative and, in Main's opinion, a more laissez faire, less governmental involvement role to the Aussie economy.

"What we have tended to see in markets towards the end of last week was firmness in the Aussie dollar which reflected people squaring up their positions and waiting to see what policies come out with the new government" Main says. "Traditionally the Australian central bank is independent and I think we are unlikely to see any change in potential policies from the central bank in Oz in the next few months but if there are major changes in policies it will have an effect."

$1.75bn Stratton Street Capital runs two absolute return funds which are invested in the Asia Pacific region. The Renminbi Bond fund which offers hedged exposure to the Renminbi and the Wonda fund, an absolute return bond and currency fund. The Wonda fund has been short the Aussie dollar and Main says he and his team remain cautious of the Aussie dollar. "There are some words coming out from the past administration that there is a bigger deficit than had been anticipated so let's wait and see what the government coming in says."

The Aussie dollar has recently been formally linked with the renminbi, as reported in Opalesque in May. Main reports that since the end of 2012 to the end of July this year the renminbi has gone from the twentieth most used to the eleventh most used for trade settlements. Further, according to a BIS report, to end April 2013, the renminbi is the ninth most traded currency worldwide. The reason for the discrepancy is it is becoming more significant as a means of exchange worldwide. "It is important that Australia can now deal in the renminbi" Main says, adding that this has also happened in Singapore, opening up their trading relations with China and pushing Singapore up to the position of largest foreign exchange centre in Asia. "For foreign exchange the renminbi is becoming more powerful" he says.

The other big news in the Asia Pacific region is Japan winning the Olympics. "We have seen a BIS report highlighting a fairly big pick up in trading in the yen since the pick up of the stockmarket in November last year. The feel good factor from the Olympics will help with its goals of opening up and being on show."

Main feels that a lot of the infrastructure is there already,  just requiring tweaking and big showpiece projects to be built. "The Japanese will use this as an excuse to carry out other infrastructure projects they need to do anyway such as upgrading the elevated road system in Tokyo which was put in place for the 1964 Olympics."

Main feels that Abenomics is working: "We have seen a revision in GDP in Japan from 2.6% on first count to 3.8% growth in second quarter - also revised up from 3.8 to 4.1% on an annualised basis so a stimulus is coming through the economy and there is a high chance it will continue."

This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.
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