China should continue to slash exposure to US bonds: analyst

By Shen Weiduo Source:Global Times Published: 2019/7/8 20:58:42

China's foreign exchange reserves rose to $3.12 trillion in June, up $18.23 billion on May levels and the highest since April 2018, the central bank revealed on Monday.

Gold holdings increased to 61.94 million ounces with a value of $87.28 billion as of the end of June, up 330,000 ounces from the previous month, data from the People's Bank of China showed. Gold reserves have increased for seven straight months.

Affected by factors such as the global trade situation and the monetary policy of major central banks around the world, the US dollar index fell and asset prices in international financial markets rose. Factors such as exchange rate conversion and asset price changes have combined to increase the country's foreign exchange reserves, Wang Chunying, spokesperson and chief economist of the State Administration of Foreign Exchange (SAFE), China's foreign exchange regulator, said Monday.

With more A shares included in the MSCI and more RQFII quotas granted under China's broad efforts to open up its financial markets, more foreign investors have been attracted to Chinese stock and capital markets. 

This increase boosted domestic foreign currency reserves, analysts said.

Foreign investors bought at least 74.7 billion yuan ($10.8 billion) or more of Chinese bonds in June, according to Bloomberg calculations.

"The increase in the country's foreign reserves shows that China's foreign trade has remained stable, with a slight trade surplus," Xi Junyang, a professor at the Shanghai University of Finance and Economics said on Monday.

China has previously reported better-than-expected export data in May despite higher US tariffs, rising 1.1 percent from a year earlier, customs data showed.

Dong Dengxin, director of the Financial Securities Institute at Wuhan University of Science and Technology, said on Monday that the increases in gold and currency reserves come as China has been seeking to diversify and expand investments beyond the US Treasury to avoid risks, as the China-US trade war drags on.

"China should continue to slash dollar assets and find alternatives to invest in. Given that, Japanese and European treasuries, along with gold are solid choices," Dong said.

China's holdings of US Treasury bonds and notes for April fell to their lowest level since May 2017, data from the Department of the US Treasury showed in June. China remains the largest non-US holder of treasuries in the world.

Xi predicts that China is expected to further reduce its reliance on US government bonds and increase gold reserves, a much safer bet under the current US protectionism policy. 

In the first quarter of 2019, net buying of gold by global central banks reached 145.5 tons in the first quarter of 2019, 68 percent higher year-on-year, the highest volume of Q1 net purchases since 2013, according to a report issued by the World Gold Council.

Newspaper headline: Forex, gold reserves rise despite trade conflict

Posted in: ECONOMY

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