Foreign exchange investors have expressed caution over the prospects for Chinese renminbi, despite the currency's growth trajectory in recent years and its depegging from the dollar in June 2010.
Foreign exchange investors have expressed caution over the prospects for Chinese renminbi, despite the currency’s growth trajectory in recent years and its depegging from the dollar in June 2010.
Buy-side speakers at the FX Invest Europe conference stated their preference for other emerging market (EM) currencies such as the Brazilian real and the Mexican peso.
“Fundamentally, everything points to the fact that renminbi should be stronger, but the issue is how we get there. To my mind, the quicker the currency is allowed to float and the more leg room it is given, the less predictable it will be. When the floodgates open, all the onshore renminbi will try to go offshore. The trajectory of the currency during that adjustment is quite uncertain,” said Daniel Murray, global head of research at EFG Asset Management.
In a separate presentation, Thanos Papasavvas, fixed-income and currencies strategist at Investec Asset Management in London, explained why the yuan is not part of his ideal EM portfolio. “We prefer other Asian currencies - it is always about relative value. China is a relative-value approach in terms of managing the risk from a regional point of view, but also from a beta point of view,” he said.
Jonathan Davies, head of currency in the global investment solutions division of UBS Global Asset Management, warned the level of Chinese investment has been excessively high for a prolonged period of time.
“It is almost unprecedented that such a high level of investment has been sustained for such a long time. The risk here is that China is over-invested, so the return on this investment will be disappointing. It might turn out that China’s level of capital is too high and we are going to see a retrenchment,” he said.
This article was first published on FX Week