China’s Pension Head Offers Glimmers of Hope, Lifts Euro

(June 10, 2010) — The euro rose after the head of China’s $114 billion state pension fund mitigated concerns that the country might cut its reserves in the single currency, stating that the euro would weather Europe’s debt crisis.

“I think it is quite normal for the euro to be experiencing swings because of the European debt crisis,” Dai Xianglong, chairman of the National Social Security Fund, said at a financial forum in the port city of Tianjin, Reuters reported. “I do believe the euro will gradually stabilize and survive the crisis.”

The euro climbed about 0.7% to $1.2070 against the dollar and was up about 0.3% to £0.8271 versus the pound. Against the yen, the euro climbed approximately 0.7% to Y110.12, with markets partly boosted by better-than-expected Chinese export data, the Financial Times reported.

The National Social Security Fund’s Chairman Dai Xianglong issued comments that the euro would gradually stabilize yet he issued caution on the dollar, saying that he expected future turbulence in the dollar as a result of widening deficits in the US. “The US fiscal deficit is still big, so there is a risk that the value of China’s forex assets will contract,” Dai said.

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Following the euro’s rebound, strong Chinese exports, and upbeat Aussie jobs data, the Australian dollar rallied as much as 1.5%.

“The data from Australia and China, together with remarks from (Fed Chairman) Bernanke yesterday on the U.S. economy, suggest that the European debt problems have so far not been damaging economies elsewhere,” said Minoru Shioiri, chief manager of forex trading at Mitsubishi UFJ Morgan Stanley Securities in Tokyo, to Reuters.

China’s pension fund expects its assets under management to reach 2 trillion yuan ($293 billion) by 2015 from 776.5 billion yuan at the end of last year.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Diversification might be the order of the day for asset management firms, but are the skills available to successfully implement such a strategy? Perhaps not, according to veteran buy-side trader Tony Whalley, head of derivatives and dealing at Scottish Widows Investment Partnership, which manages roughly €180 billion (US$217 billion) of assets as part of the UK’s Lloyds Banking Group.

“I know a number of investment firms that have no in-house derivatives experts,” Whalley told The TRADE recently in an interview for a series of articles about that mythical beast, the multi-asset trading desk. Whalley also believes that predominantly cash equities-orientated trading desks don’t necessarily have a strong grasp “of the varied, different exposures of trading in derivatives.”

And the skills deficit is not just on the trading desk. Portfolio managers often have too narrow a view of the markets to devise non-correlated investment strategies in response to shocks to the traditional stock and bond markets. Consider this from John Greenan, global muti-asset connectivity manager at BNP Paribas Investment Partners, which manages €550 billion (US$664 billion) assets under management: “It’s quite rare for fund managers to bring together a trade that involves more than two asset classes. The world of the institutional buy-side remains siloed.”

Sharing the same platform at industry forum, TradeTech Europe held in London in April, Kristian West, managing director, equity trading, J. P. Morgan Asset Management (AUM: €1 trillion, US$1.2 trillion), said the firm had no intention of moving its London-based equities, fixed income and FX traders from their current stations on three separate floors of the same building.

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In truth, there is flexibility within the existing framework. Traders at big firms regularly move between desks to develop expertise and some asset managers are actively pushing their equities and fixed-income traders together. But internal synergies and skillsets are only part of the picture. You also need support from technology vendors and particularly brokers to develop and implement the full sweep of investment ideas that are called for in uncertain times like these. Firms that don’t already have flexibility built into their product offering will take little comfort from the old Irishman’s advice to a lost tourist: “I would start from here.”