Rally in US dollar to end in 2016, say money managers to Asia's wealthy

A Pakistani currency dealer counting US dollars at an exchange in Karachi on Dec 17.
A Pakistani currency dealer counting US dollars at an exchange in Karachi on Dec 17. PHOTO: AFP

(BLOOMBERG) - Money managers for Asia's wealthiest families say they'll be looking elsewhere for returns after chasing the US dollar's gains in the past three years.

UBS Group, the world's largest private bank, is telling clients there's "little room for further dollar appreciation", said Mr James Purcell, cross-asset strategist at its wealth management business in Hong Kong.

Mr Stephen Diggle, who runs a family office in Singapore called Vulpes Investment Management, said US rate increases aren't enough "to chase a strong dollar".

Stamford Management Pte, which oversees US$250 million (S$352.4 million) for Asia's rich, will review its outlook for greenback gains after expected advances in the first quarter, said Mr Jason Wang, its chief executive officer in the city.

Strategists also predict the US dollar's gains will slow in coming months after the Federal Reserve committed to a gradual pace of tightening.

The currency will appreciate about 5 per cent to US$1.05 per euro by the third quarter of 2016, according to a Bloomberg survey, after surging 10 per cent this year. Its advance versus the Japanese currency will be limited to less than 4 per cent to 125 yen, after gains slowed to about 0.5 per cent in 2015, from more than 10 per cent in each of the previous three years.

"Our clients will likely see the increase in US interest rates as an opportunity to earn higher yields on the their assets by shifting into dollars," said Mr Purcell, who is based in Hong Kong. "We need to remind them that financial markets move on surprises, not absolutes. The increase in rates was extremely well telegraphed and the rate-divergence story well known."

The yen may be a better cross to express a strong dollar view than the euro, Mr Purcell said. UBS expects the dollar to be little changed at US$1.08 per euro in six months and to rise to 127 yen, he said. The greenback was at US$1.0981 versus the common currency as of 9.25am in Singapore on Tuesday (Dec 28) and at 120.34 yen.

European Central Bank president Mario Draghi sparked the euro's biggest rally since 2009 by unveiling a smaller-than-anticipated stimulus package this month. By contrast, analysts surveyed by Bloomberg are almost evenly split on whether the Bank of Japan will add to its asset-purchase program or not.

The US dollar's gains are already losing steam in parts of Asia, with the Indonesian rupiah rallying 7.3 per cent in the fourth quarter, the Malaysian ringgit 2.5 per cent and the Singapore dollar 0.9 per cent. A gauge of the greenback is heading for 1.1 per cent advance this quarter and an 8.5 per cent gain this year, after an 11 per cent surge in 2014. Fed chair Janet Yellen signalled this month that the central bank is in no rush to raise rates again following its first move in almost a decade.

Mr Russ Koesterich, chief investment strategist at BlackRock, the world's biggest asset manager, wrote in a commentary this month that long-term investors willing to withstand short-term volatility should consider Asian emerging stocks and bonds because prices are attractive.

Singapore has developed into a wealth management hub, with total assets managed by asset managers based there of S$2.4 trillion at the end of last year, according to the Monetary Authority of Singapore.

Stamford Management expects the greenback to strengthen about 7 per cent next year to S$1.50 versus the Singapore dollar, a level not seen since April 2009, said Mr Wang. The Singapore-based family office, which started switching its assets into the greenback from the local dollar more than two years ago, will review its position should the currency pair reach its target, he said.

"We could see an easy 5 to 10 per cent appreciation of the US dollar versus other risk or emerging-market currencies," Mr Wang said. "That, to me, is relatively easy money. Thereafter, we'll review it in late first quarter."