Yuan Revaluation To Boost Hedge Fund Flows Into Asia

by Carla Johnson, Investors Offshore.com

26 July 2005

Hedge fund flows are expected to increase into Asia following China's long-awaited revaluation of its currency, the yuan, according to analysts.

Last Thursday, China scrapped its peg to the US dollar, deciding instead to link the yuan to a basket of currencies. This has resulted in a moderate strengthening of the Chinese currency against the dollar to the tune of 2.1% to 8.1%.

"The revaluation is yet more evidence that the Chinese economy is emerging as a world force and as a result of that you will see more hedge fund activity in China-related stocks," noted Paul Smith, head of alternative fund services for HSBC in New York, according to Reuters.

Adrian Mowat, chief equity strategist with JP Morgan, noted: "There will be a scramble to buy China names like China Mobile, Sinopec Corp. and China property stocks." He added that: "There will be a general move to buy into Asia."

Hedge funds currently have around $65 billion invested in Asian securities, although this is a relatively small fraction of the total amount of assets managed by hedge funds globally, which is now accepted to be in excess of $1 trillion.

However, given that the revaluation of the yuan is much smaller than the markets were expecting, other analysts believe that there will not be a significant movement of speculative money into China or Asia as a whole, while others predict that the yuan will be allowed to appreciate by another 5% over the next one to two years.

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