AppId is over the quota
AppId is over the quota
By Laurence Fletcher
LONDON | Wed Sep 21, 2011 11:47am BST
LONDON (Reuters) - Dexia's emerging markets debt fund is betting on weakness for South Africa's rand and the Australian dollar and sees Asian currencies as more resilient given the vulnerability of commodity-linked currencies to a slowing global economy.
George Farre, who runs the 100 million euro Long-Short Emerging Market Debt fund, pointed to recent appreciation of the rand, which has risen from less than $6.70 last month to $7.40, despite "very, very low" consumer confidence and slowing growth in South Africa.
"The fundamental picture is not good in South Africa, we think it (the currency) is expensive," Farre said on Friday.
"If things get worse people are going to deleverage. It's a very bad risk/reward being long."
The Australian dollar has strengthened from just over $0.80 last summer to nearly $1.04 currently, and Farre says it looks vulnerable to a sharp global economic downturn.
"If we move to slower growth for a longer time, demand is not going to be as high and those currencies will have a correction," he said.
Market volatility has also prompted Farre to cut leverage in his fund from 200 percent to flat and cut positions in trades he sees as crowded, such as the Malaysian ringgit and Indonesian rupiah.
"The ringgit is a position that's really crowded. If anything messy happens, then it could be affected more than others," he said.
ASIA
However, he has retained long positions in Asian currencies such as the Chinese yuan, Singapore dollar and Korean won.
While interest rates have stopped rising in some Asian countries, they are unlikely to be cut because the U.S. and Europe will act to help stimulate global growth, he said.
"I think Asian (currencies are) protected from the turmoil fundamentally. I think there won't be a collapse in Asian currencies as we saw in 2008," he said. "It won't be necessary to cut interest rates in Asian countries. Asia has strong growth, reserves, balance of payments.
"We think G3 countries -- Europe, the U.S. and Japan -- will deliver a lot more liquidity easing... I think one way or the other they'll do things similar to QE3."
Farre is also long the Polish zloty against the Hungarian forint, which hit a one-year low on Friday, and has also bought credit default swaps -- which pay out in the event of default -- because of Hungary's debt to GDP ratio of nearly 80 percent.
"We think the situation in Hungary is not very good," he said. "If things go wrong in Europe, there's a higher probability of default in Hungary.
"They're doing everything to sustain the currency. But to give them more competitiveness the currency should depreciate... Poland is a lot stronger than Hungary."
(Editing by Sinead Cruise and Patrick Graham)
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