China’s capital outflows may have eased. Foreign exchange reserves rose USD 10.3bn to USD 3.21trn in Mar16. This was the first increase in five months. Meantime, mainland banks’ net foreign exchange sales moderate to USD 36.4bn from USD 54.4bn in Jan16 and USD 89.4bn in Dec15.

That said, China’s households have as much as USD 5trn in savings and amidst China’s slowing economy and heightened market volatility, they have been seeking to diversify their investments, either from a currency or geographical perspective. Hence, households are likely to continue accumulating overseas assets, not only in search of returns, but also for wealth preservation.

In Q1 2016, China saw unprecedented outbound M&A volume which nearly eclipsed the FY15’s amount. Of the USD 622bn in global mergers and acquisitions activity (M&A) in 1Q16, USD 97bn or 16% involved Chinese buyers. This was China’s largest quarterly share of global deal activity on record; and equivalent to 80% of FY15’s volume. Once completed, these deals will lead to substantial one-off capital outflows.

Outbound investments and surge of property prices in overseas gateway cities have concurrently exploded in a short period of time. These trends are likely to persist in spite of recent stabilization in foreign reserves. This suggests that it may be premature to conclude that the worst is over.