Asian wealthy advised to prepare for dollar rally's end in 2016

[SINGAPORE] 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 AG, the world's largest private bank, is telling clients there's "little room for further dollar appreciation", said James Purcell, cross-asset strategist at its wealth management business in Hong Kong. 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, which oversees US$250 million for Asia's rich, will review its outlook for greenback gains after expected advances in the first quarter, said Jason Wang, its chief executive officer in the city.

Strategists also predict the 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 9:25 am in Singapore on Tuesday 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 programme or not.

The 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.

Russ Koesterich, chief investment strategist at BlackRock Inc, 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.

Mr Diggle's family office has refrained from betting on currencies, except for a position that seeks to profit from a decline in the New Zealand dollar. That's more of a hedge on its acquisition of an avocado orchard in the South Pacific nation last year, said Mr Diggle, an Oxford University graduate who worked at Lehman Brothers Holdings before co-founding a hedge fund that made US$2.7 billion in 2007 and 2008.

Vulpes, set up by Mr Diggle in 2011, seeks to cover the short kiwi position should the currency slide below 60 US cents in 2016 from around 68 now, he said. The family office made money last year from the US currency's advance against the euro, yen and Australian dollar, Mr Diggle said. Family offices are typically tailored to both investment and personal needs, including estate planning, philanthropy and maintaining homes.

"We still don't like the dollar as much as most people, but don't want to bet against it either; the US is raising rates and most other major economies won't be any time soon," Mr Diggle said. "We would be surprised if the Fed can tighten three times next year without a broad improvement in global trade, which would be welcome, but wouldn't necessarily be dollar positive."

Stamford Management expects the greenback to strengthen about 7 per cent next year to S$1.50 versus 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."

BLOOMBERG