①Communication with foreign investors shows an increase in interest in China, and some long investors may return to China; ②Since late September, net foreign purchases of domestic stocks have increased overall; 3. Foreign capital inflows into China help stabilize the RMB exchange rates.
CAF Securities News on October 22nd (Reporter: Wang Hong) Recently, a package of policies has boosted the strength of the capital markets, and various sources indicate that foreign capital is flowing into China. UBS Group analysts stated that communication with foreign investors shows an increase in interest in China, and some long investors may return to China. Li Hongyan, Deputy Director of the State Administration of Foreign Exchange, also stated today that since late September, net foreign purchases of domestic stocks have increased overall, further strengthening the willingness of foreign capital to allocate RMB assets.
Experts believe that foreign capital inflows into China help stabilize the RMB exchange rates. Data also shows that the RMB's performance in the global forex market is relatively stable. Experts indicate that looking ahead, the probability of a significant depreciation of the RMB exchange rate is small, and it is expected to remain in a two-way fluctuation and overall stable trend.
Net purchases of stocks by foreign capital in China have increased overall.
Since late September, the government has introduced a series of monetary, fiscal, and real estate easing policies to support economic growth, which in turn has led to a strengthening of the capital markets. Information from various sources indicates that investor sentiment has improved, interest in China has increased, and foreign capital buying of Chinese stocks has increased.
"We have recently seen significant changes in the situation of investment onshore. The sentiment of some investors seems to have turned significantly optimistic," said Wang Zonghao, UBS China Stock Strategy Research Director today. This optimism mainly stems from the apparent shift in government economic agendas and the urgency of policy support implementation.
Wang Zonghao also mentioned that based on his discussions with foreign investors, for some investors participating in this rebound, they may have significantly underweighted China before and were concerned that we might see a liquidity-driven rebound like in 2015. "Investor interest in China is increasing, and if some key economic indicators (especially nominal social zeros) stabilize, some long investors may return to the Chinese market.
Today, in a press conference at the State Council Information Office, Li Hongyan disclosed that due to the rise in the domestic stock market, since late September, net foreign purchases of domestic stocks have increased overall, and the willingness of foreign capital to allocate RMB assets has been further strengthened. "Currently, foreigners account for around 3% to 4% of the market in domestic stock and bond markets, supported by multiple favorable factors, there is further room for improvement."
Li Hongyan also pointed out that in recent period, foreign capital allocation of RMB assets has shown a good overall momentum. As of now, the total amount of RMB bonds held by foreign capital in the domestic market exceeds $640 billion, reaching a historical high. Foreign capital investment in domestic bonds continues to steadily flow in, with a net increase of over $80 billion in the first three quarters; the recent situation of foreign capital investment in domestic stocks has also significantly improved, with external debt changes remaining stable.
Inflows of foreign capital help stabilize the Renminbi exchange rates.
What impact will the recent continuous influx of foreign capital into China have on the Renminbi exchange rates? Lou Feipeng, a researcher at Postal Savings Bank of China, told Caixin reporters that this helps stabilize the Renminbi exchange rates. "On one hand, it increases demand for Renminbi and Renminbi assets, which in itself helps stabilize the exchange rates. On the other hand, it also helps stabilize the economic fundamentals, further providing support for the Renminbi."
In fact, compared to other currencies, the Renminbi has also shown relatively stable performance in the global foreign exchange market. Since the beginning of this year, the spot exchange rate of the Renminbi against the US Dollar (CNY) has depreciated by around 0.3%; meanwhile, the US Dollar Index has risen by 2.3%, the Euro and Japanese Yen have depreciated by 1.7% and 5.9% against the US Dollar respectively, and the emerging market currency index has fallen by 6.3%.
"The Renminbi exchange rates are mainly determined by the market. Under market-driven mechanisms, it is normal for the Renminbi to appreciate or depreciate, and two-way fluctuations are common," Li Hongyan stated. Even though in August and September, there was a relatively clear rise in the Renminbi exchange rates against the US Dollar, it was a common reaction to the overall weakening of the US Dollar against various non-US Dollar currencies, and the Renminbi's increase is also considered average on a global scale, with a relatively mild impact on imports and exports.
Enterprises maintain a rational approach to foreign exchange transactions. Data from the State Administration of Foreign Exchange shows that the settlement rate from August to September was 66.4%, increasing by 5.7 percentage points compared to the previous seven months. The selling rate from August to September was 66.7%, decreasing by 2.8 percentage points compared to the previous seven months. The total scale of settlement and sale transactions in September increased by 14% compared to August.
Li Hongyan stated that the recent Renminbi exchange rates have shown appreciation and depreciation, enhancing flexibility. Entities such as enterprises are selectively engaging in foreign exchange transactions based on cross-border trade and investment financing needs. Additionally, the settlement rate has orderly risen recently and the selling rate is stable, maintaining a rational approach towards foreign exchange transactions.
The Renminbi is expected to maintain a two-way fluctuation trend.
Recently, there has been a certain degree of fluctuation in the Renminbi's central parity against the US dollar. Today, the Renminbi's central parity against the US dollar was lowered by 241 basis points; on October 21, the Renminbi's central parity against the US dollar was raised by 292 basis points. According to forex expert Zhang Tian, the recent close match between the People's Bank of China's daily central parity rate and the market rate, along with significant fluctuations, is mainly due to the suspension of counter-cyclical adjustment factors, leading the central parity to approach the market rate.
Looking ahead, Fan Ruoying, a researcher at the Bank of China Institute of International Finance, told Caixin reporters that the probability of a substantial RMB exchange rate continued decline is small. It is expected to maintain a trend of two-way fluctuations and overall stability. Internally, China's series of growth-stabilizing policies enhance market expectations, consolidate economic recovery foundations, and provide good support for the stable operation of the Renminbi. Externally, the Federal Reserve is still in an interest rate reduction cycle, with uncertainties in pace and magnitude, and insufficient momentum for the US dollar to strengthen further.
"We believe that the positive impact of China's stimulus measures on the Renminbi has peaked. After the recent rebound of the US dollar, the offshore Renminbi quickly broke through 7.1, and market concerns about the risks of the US election intensified," said Jerry Chen, senior analyst at CMC Markets, to Caixin reporters. With the intense competition in the US election, the offshore Renminbi against the US dollar may hover around 7.15.
