Chinese renminbi is going towards stabilisation, Invesco says

Over the next six to nine months, the Chinese renminbi will undergo a stabilising phase and resume its appreciation trend as Chinese growth bottoms out and reforms and fiscal policies accelerate with new political leaders, according to Paul Chan, chief investment officer for Asia excluding Japan at Invesco.

“Prior to reaching its 19-year high, investors should be aware that the renminbi depreciated against the US dollar in June and July, amidst China’s hard landing fears,” Chan said.

Despite frequent news headlines of renminbi outflow at the time, Invesco’s view is that Chinese corporates were concerned about renminbi depreciation, and thus switched temporarily to US dollars but that money never left China.

In September, quantitative easing and asset purchase programs prompted appreciation in other Asian currencies and improved liquidity.

“Investors who have realised the worst of China growth have turned and unwound their short positions on renminbi, deploying their US dollars again,” Chan said.  

Another concern was the political leadership transfer, for which overhang has been largely dismissed by the announcement that the 18th National Congress will be held in early November, providing clarity on the political leadership transfer.

Looking ahead, the CIO said, a key risk would come from the external shocks from developed markets such as the recent S&P downgrades on Spain, US election and the fiscal cliff that may lead to a retreat from Asia and emerging markets due to risk aversion.

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