Top fund favours corporateson slowdown end

Zou Yu says growth on mainland could rebound in fourth quarter and unlikely to slow further

PUBLISHED : Saturday, 13 October, 2012, 12:00am
UPDATED : Sunday, 14 October, 2012, 11:19am

The mainland's top-performing bond fund manager says corporate debt will outperform government notes as economists have overestimated the need for monetary easing to revive the economy.

Wanjia Asset Management, which oversees 29.7 billion yuan (HK$36.4 billion) of assets, said growth might rebound to as much as 7.6 per cent and inflation might exceed 2 per cent in the final quarter of this year.

In the third quarter, the economy expanded 7.4 per cent, the slowest in 42 months, according to a survey of 35 analysts.

"It may be difficult for the economy to have a decent rebound this year, but at least the good thing is that it won't slow further in the fourth quarter," said Zou Yu, the head of fixed income in Shanghai at Wanjia, whose Wanjia Tianli Bond Fund B's net asset value per unit rose 51 per cent in the past year.

"The probability of a cut in interest rates or reserve requirement ratio is very small this year."

Bets on a recovery have driven the 10-year sovereign yield four basis points higher to 3.5 per cent this month, even as the Asian Development Bank and the International Monetary Fund cut their growth estimates for this year. Similar-maturity debt yields 8.08 per cent in Russia, 8.16 per cent in India and 9.64 per cent in Brazil.

Zou's forecast contrasts with the median for a 1 percentage point cut in banks' reserve requirements this year, according to a separate survey of 14 economists.

The yield on one-year government debt fell two basis points this month to 2.77 per cent, after rising 45 basis points last quarter, Chinabond data shows. The rate on similar-maturity corporate bonds dropped three basis points to 4.16 per cent, after gaining 75 basis points in the previous three months.

Premier Wen Jiabao said on September 11 the nation had room for fiscal and monetary measures to support growth and would meet this year's economic goals. The central bank lowered the benchmark deposit and lending rates by 25 basis points in June and July. The rate cut in June was the first since 2008.

"An interest-rate cut can't be excluded by the end of this year," said Lu Xin, a bond fund manager in Shanghai at Everbright Pramerica Fund Management, which manages 23 billion yuan of assets.

''The high funding costs are hurting local companies and ultimately the economy.''

Lu said it was ''risky'' to invest in low-rated bonds as the economy slowed.