[Shanghai / Hong Kong, 29th Archyde.com]–The Chinese yuan has plummeted recently, reminiscent of past price collapses. However, market participants believe that foreigners’ holdings of yuan-denominated assets are now increasing, making it less likely that authorities will be able to curb the decline as before.
The yuan hit a year and a half low once morest the dollar on April 29. The monthly rate of decline exceeded 4.5%, the highest since the reform of the exchange system in 1994.
The yuan plunged in 2015-16 and 18-19. Domestic investors largely fled to foreign assets, the latter especially in the background of the US-China trade war. However, unlike these two times, the main reason for this decline is the selling of foreigners, which poses a new downside risk. The yuan might fall further, partly due to upward pressure on the US dollar.
The presence of foreign money in the RMB market is increasing. According to data from the People’s Bank of China (People’s Bank of China), foreign investment in the Chinese market was regarding 1.5 trillion dollars in 2015, but by the end of last year it was over 8 trillion yuan (1.2 trillion dollars). It was expanding.
“I don’t think the yuan is weakening because (authorities) want to support exports,” said Alicia Garcia Herero, chief economist for Asia Pacific at Natixis. “The selling pressure on the yuan is investor. I think it was due to the escape and the loss of confidence in the Chinese economy. “
The People’s Bank of China announced on the 25th that it would reduce the reserve requirement ratio of banks, which is seen as a signal to support the yuan, but the market price continued to decline. The Shanghai Composite Index fell 6% in April. Foreigners sold $ 17.5 billion in Chinese stocks and bonds in March, according to the latest monthly data.
Yuan Yuway, manager of Water Wisdom Asset Management, said, “It’s a mirror of the 2020 yuan’s appreciation. At that time, the United States was supplying a lot of liquidity, while China was the first to make a new corona pandemic. I was recovering from. ” China has pointed out that the financial situation of local governments has deteriorated due to the “zero corona policy” to prevent corona infection, and that companies are also in a deadlock.
Global banks are rushing to revise their yuan outlook this year. Standard Chartered expects the dollar to fall to 6.7 yuan by the end of June as a result of continued capital flight.
Since the current capital flight is led by foreign investors, it is difficult for the authorities to control capital.
According to Archyde.com surveys and official statistics, domestic investors are not inundated with dollar buying and selling.
In fact, finance officials at Chinese importers have confessed that they are more concerned regarding the disruption in logistics, with customs clearance now almost suspended due to corona-related regulations rather than the former market price.
According to Shea Chun, chief economist at INTEC Investment Holdings, many Chinese went to Hong Kong during the 2015 plunge to flee funds from abroad through insurance in Hong Kong. Now that it’s Corona, it’s not easy to go to Hong Kong in the first place.
According to Chun, what China needs to do now is to convince global long-term holdings to stay in China. Once these investors decide to withdraw money, it won’t be easy to come back.
According to COPLEY Fund Research, China’s share of emerging market portfolios peaked at 38.3% in late 2008 and has now fallen to 29%. In particular, it is said that the Chinese government has cracked down on IT companies.
Fund managers are re-examining the risk of holding too many Chinese stocks, in addition to the sanctions imposed on Western countries by Russia’s invasion of Ukraine, according to the research’s founder Stephen Holden. This is because the Chinese government is currently friendly to the Russian government.
Julius Baer Group’s CEO, Eve Bonzon, described various geopolitical risks as “a dangerous Damocles sword hanging over the Chinese economy and capital markets.” Point out.
The Chinese economy is certainly continuing to grow, and although the yuan plunged in April, it has only returned to the middle of the market range since 2016. Moreover, the yuan is still very strong in terms of effective rate. But most market players find it difficult for the yuan to bottom out without stronger guidance from the People’s Bank of China.
(Reporter Samuel Shen, reporter Alun John)
