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The Chinese yuan is expected to prop up on renewed appetite for the country’s financial assets, according to the latest research report from Scotiabank.
CSRC Vice Chairman Fang Xinghai said on Saturday that the inclusion of Chinese A-shares in global stock indexes could see foreign inflows into China's stock market doubling in 2019, according to Shanghai Securities News and Reuters.
Foreign investors have purchased a net CNY12.23 billion and CNY7.10 billion of Shanghai and Shenzhen stocks respectively year-to-date, via the two stock connect programmes. China Daily reported on January 4 that the earliest time for the launch of the long-awaited Shanghai-London Stock Connect scheme might be the second half of this month.
As at end-September 2018, foreign positions in yuan-denominated equities and bonds increased 25 percent and 58 percent respectively to CNY1.28 trillion and CNY1.75 trillion from a year ago.
However, foreign ownership of Chinese equities and bonds remains as low as 2-3 percent each, suggesting a substantial room for increasing yuan asset allocation. Portfolio investment inflows could offset the impact of China’s shrinking current account surplus on the yuan exchange rate.
The WSJ reported on Friday that Chinese Vice-Premier Liu He is set to visit Washington on January 30-31 for further trade talks, citing people familiar with the plans. Liu He would meet US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin during his upcoming trip.
"We expect the world’s two largest economies to reach a trade deal by the March 1 deadline, which would spark risk appetite further across the markets," the report commented.
Meanwhile, the MNI reported late on Friday that the PBoC does not want a sharp appreciation in the yuan and the current rally could be capped at about 6.7 to the dollar, citing a source close to the central bank.
"Although the yuan pared some of its early gains due to the report, we doubt it as the central bank is less likely to explicitly specify a level to be defended," Scotiabank further noted.
