Loomis Bond Veteran Cuts Bets on Asia FX in Trade War Hedge

(Bloomberg) -- The U.S. trade war with China is set to linger, dragging currencies across Asia deeper into the conflict.

That’s the view of Lynda Schweitzer, a portfolio manager at Loomis Sayles & Co. with more than 30 years of investment experience, who has cut Asian emerging-market currency exposure to help stem those risks.

“We are looking at a long period of uncertainty as this trade war plays out. We are not calling the bottom,” Schweitzer said of the latest developing-market rout. “We have gotten out of our Asian currencies.”

Loomis Bond Veteran Cuts Bets on Asia FX in Trade War Hedge

Even as economic turmoil in Turkey sparked a meltdown in markets last week, investors from Loomis Sayles to OppenheimerFunds Inc. reckon the wildcard for emerging Asian assets remains the conflict between China and America. Fund managers say the road to recovery is strewn with obstacles, even as low-level trade talks are set to resume between the world’s two biggest economies.

Fidelity International warns that the dispute may worsen in the coming months, while Principal Global Investors LLC is similarly bearish. “Emerging economy debt and equity markets have underperformed most of this year -- that trend will likely continue,” said Principal’s Chief Global Economist, Bob Baur.

The U.S. dollar has risen almost 7 percent since mid-April as investors flock to the reserve currency for safety. In contrast, emerging-market currencies, traditionally the darlings of investors when they’re upbeat about global growth, have slid about 11 percent, a JPMorgan Chase & Co. gauge shows.

Schweitzer, who helps manage part of Loomis’ $264 billion in assets, has brought her portfolio’s Asian foreign-exchange holdings in line with its benchmarks.

“We had an overweight to Indonesia, which we did like from a fundamental stand point,” the Boston-based fund manager said in an interview in Sydney. “But as the trade war fears heated up, we got a little more cautious around Asian currencies in general because of the direct ties to China.”

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