Societe Generale SA plans to expand its Asia fixed-income team by more than 10 percent next year as hedge funds, insurers and central banks diversify from developed markets, said Robert Reilly, co-head of the division.
France’s second-largest bank by market value will have increased the team by more than 50 percent to 70 this year, said Reilly, who moved to Hong Kong from Sydney in January to oversee the expansion, in an interview on Friday. The team will boost its research staff to seven from four, based in Hong Kong and Tokyo, in the coming months. He declined to give more specific figures on the expansion.
“We’ve seen a marked growth of inquiry and transactions in Asian rates from clients who used to just sit with developed-market products,” he said. “It’s a diversification play. As the share of the world’s gross domestic product in Asia is increasing, funds need to be more focused and turned on to Asia.”
“Our recommendation is to be long Asian currencies against the euro,” he said. “There is so much pressure on the US to strengthen their currency that the euro is going to weaken on the back of that. Such a strong euro is going to hamper economic recovery across Europe.”
Long positions are bets that a currency will rise.
Asian central banks may be more willing to tolerate appreciation in their currencies against the euro because they have been focusing on stabilizing the dollar exchange rate to protect exports, Reilly said. Societe Generale recommended on Oct. 28 that investors buy the Korean won against the euro, predicting an 11 percent advance in the Asian currency.
The New Taiwan dollar is on the verge of overtaking the yuan as Asia’s best carry-trade target given its lower risk of interest-rate and currency volatility. A strategy of borrowing the New Taiwan dollar to invest in higher-yielding alternatives has generated the second-highest return over the past month among Asian currencies behind the yuan, based on the Sharpe ratio that measures risk-adjusted relative returns. The New Taiwan dollar may soon replace its Chinese peer as the region’s favored carry trade tool, analysts say, citing Beijing’s efforts to support the yuan that can create wild swings in borrowing costs. In contrast,
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