News and Finance

The Chinese yuan and Australian dollar will gain next year as China surpasses Japan as Asia’s biggest economy and policy makers in both nations raise interest rates, according to Clariden Leu AG.

China will seek to boost consumer spending by maintaining stimulus spending and shift its economy away from exports by allowing a stronger yuan, said Chew Soon Gek, the Singapore- based Asia head of portfolio management and investment strategy at Clariden, which manages $101 billion globally as the private banking arm of Credit Suisse Group AG. China’s consumers have already outspent Americans on luxury goods and cars, Chew said.

“China is in the early stages of rebalancing its economy to one that’s domestically driven and the exchange rate will be one of the adjustments required in that shift,” Chew said in an interview on Dec. 4. “A stronger yuan is always on the cards. As to the exact timing, no one can really call that.”

Premier Wen Jiabao rebuffed calls from European leaders to make the currency more flexible to offset global trade imbalances after a meeting on the mainland on Nov. 30. Pacific Investment Management Co., which manages the world’s biggest bond fund, said last week bets that China will ease controls on its currency are among the best in emerging markets.

Twelve-month non-deliverable yuan forwards fell 0.3 percent to 6.6365 per dollar as of as of 8:17 a.m. in Hong Kong, indicating traders expect the yuan to rise 2.9 percent in a year from the spot level of 6.827, according to data compiled by Bloomberg.

China has kept the yuan at about 6.83 since July 2008, after letting it strengthen 21 percent in the previous three years after a dollar peg was scrapped. Clariden’s Chew didn’t provide a forecast for the currency.

Aussie Parity

China’s $4.3 trillion economy may exceed Japan’s next year based on current exchange rates, Chew said. The Chinese central bank held $2.27 trillion of foreign-exchange reserves at the end of September, the world’s largest.

China’s economy expanded 8.9 percent in the third-quarter from a year earlier, compared with 7.9 percent in the preceding quarter. Government reports in the past month showed manufacturing maintained the fastest pace of growth in 18 months in November and the trade surplus widened in October.

The Australian dollar should reach parity with the U.S. currency, a level last seen in August 1982, as the central bank raises interest rates, Chew said.

The Aussie, as the currency is known, traded at 91.29 U.S. cents, compared with 91.47 on Dec. 4. The currency has risen 34 percent this year against the U.S. currency. Only the Brazilian real has appreciated more.

Resource Demand

Australia’s proximity to Asia and rising demand for commodities is helping it rebound faster than other developed economies, Chew said. Raw-material exports make up more than half of Australia’s exports.

“The Aussie at 95 to 98 is reachable,” Chew said. “It would be hard to be exact on when parity will be achieved but definitely, within the next 12 months.”

Central bank Governor Glenn Stevens lifted its cash rate target three times this year to 3.75 percent. The market expects the rate to rise to as high as 5 percent in the next 12 months, Chew said.

“The RBA has started the cycle of normalizing interest rates and this is a vote of confidence on the strength of the economy,” Chew said. “Australia is a very good proxy play for Asia’s growth story and resource demand.”

Clariden also recommends investors buy high-grade corporate bonds in South Korea, Singapore, Hong Kong and China and selective high-yield debt in Indonesia. It favors equities in China, South Korea and India.

“Within emerging markets, Asia is likely to see the highest GDP growth,” Chew said. “Further fund inflows into Asian equities are likely because foreign buying as a percentage of market capitalization is still far from the previous peak in May 2004.”

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