Yuan’s rise helps China bonds, stocks purchases

Source:Reuters-Global Times Published: 2017/9/12 17:43:39

Renminbi-denominated assets ‘more attractive’ to foreign investors in 2017


The yuan's surge this year has helped increase foreign purchases of Chinese bonds and stocks.

The tide of capital gushing out after the 2015 stock market crash and 2016's market turbulence has reversed this year, as China has put up good economic numbers and the yuan has erased last year's 6.5 percent loss against the dollar.

With the yuan in a "trajectory of appreciation", said Yuanta Financial Holdings strategist Alvin Zhang, yuan-denominated assets have gotten "more and more attractive to overseas investors."

Also aiding inflows was MSCI's decision to include China stocks in its global indexes as well as the weak dollar.

"People are more cautious toward the US dollar," Rene Buehlmann, Asia-Pacific head of UBS Asset Management, said in Shanghai.

"Over time, they will realize that [the yuan] is a great diversifier in the portfolio," said Hong Kong-based Buehlmann, who has been relentlessly pitching for global investors to buy Chinese bonds.

The People's Bank of China, the country's central bank, seems to feel the currency's climb has been too sharp.

On Tuesday, the midpoint for yuan onshore trading was set weaker than the previous day, ending an 11-day streak of stronger settings.

"China's central bank is sending a fresh signal that it doesn't want to see one-way appreciation, especially rapid appreciation," said Tang Xiangbin, a researcher at China Minsheng Banking Corp.

Whatever happens with the yuan's movement, capital market deregulation in China is likely to continue.

Reflecting rising demand for China's fixed income assets, foreign holdings of onshore bonds increased for a sixth straight month in August, reaching 497.8 billion yuan ($76.1 billion).

The flow was partly aided by the two-month-old Bond Connect scheme that allowed qualified overseas institutions to buy onshore bonds without quota - a move taken by China as a big step to open its capital markets.

Net purchases of A shares via the "Stock Connect" scheme increased for five months in a row to 27 billion yuan in August.



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