Hong Kong debt fund aimed at EU fund selectors

Hong-Kong based MW GaveKal has launched the MW GaveKal China Fixed Income strategy, a long only Ucits fund aimed at European institutional and professional investors.

The strategy’s fixed income holdings may include government and corporate bonds though no more than 30% can be invested in non-investment grade fixed income instruments.

It will invest in debt instruments denominated in renminbi, Hong Kong dollars or Singapore dollars.

MW GaveKal believes as the pace of financial deregulation in China accelerates, the internationalization of the renminbi and the growth of the Chinese offshore bond market will be major events for global financial markets.

It “therefore makes sense for investors to diversify their fixed income holdings through the ownership of renminbi, Hong Kong dollar or Singapore dollar bonds,” the asset manager argued.

Louis-Vincent Gave (pictured), chief executive of MW GaveKal, will manage the strategy alongside the eight person GaveKal Research team based in Beijing.

According to Gave, “China’s attempt to create an offshore bond market and transform the renminbi into a regional, or even global, trading currency could well be the most important financial event of the coming decade.”

“If China manages to do what Germany did in the 1960s and 1970s and transform its economic zone from a ‘US dollar trade-zone’ to a ‘renminbi trade-zone’… the repercussions on regional trade, on the volatility of growth, on the way companies finance themselves…will prove to be enormous,” he added.

Gave believes China can only be successful in making the renminbi a trading currency if the currency is perceived to be as strong as the Deutsche Mark was in the 1960s and 1970s.

This means “the People’s Bank of China will tend to err on the side of hawkishness (as the Bundesbank used to in its pre-European Central Bank days) and that the RMB should continue to gain against Western currencies willingly debased to accommodate failing welfare-states,” he said.

MW GaveKal is a joint-venture between Marshall Wace, a global hedge fund manager with offices in London, Hong Kong and Connecticut, and GaveKal Holdings, a financial services company headquartered in Hong Kong with offices in Beijing and Denver.

The MW GaveKal China Fixed Income strategy will be the fourth Ucits strategy focusing on Asia managed by MW GaveKal.

The fund will have unhedged US dollar, euro and sterling share classes. Registered in Ireland, it will launch on March 1 2012 and be marketed primarily to European investors, although the asset manager expects to attract some US investors as well.

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