China’s capital outflows are accelerating and the central bank is selling larger amounts of foreign exchange, Goldman Sachs Group Inc warned as the yuan headed for its biggest annual decline in more than 20 years.
A net US$69.2 billion exited the nation last month, compared with a monthly pace of about US$50 billion since June, Goldman economists led by Hong Kong-based M.K. Tang (鄧敏強) wrote in a note on Friday last week.
Money has been leaving in yuan payments for 14 consecutive months, while the central bank’s yuan positions have slumped the most since January. The situation could get worse, CEB International Investment Ltd head of research Banny Lam (林樵基) said.
Photo: Reuters
“Capital outflows and yuan depreciation will continue or even worsen by the end of this year and the first quarter of 2017, as investors are getting increasingly concerned about a stronger [US] dollar and China’s economic conditions,” Hong Kong-based Lam said. “The yuan will reach 7 very soon. Policymakers will keep tight capital control in the near term, but will continue to internationalize the currency in the long term.”
The equivalent of US$33.6 billion exited China via yuan payments last month, compared with US$29 billion in October, according to the Chinese State Administration of Foreign Exchange.
The monetary authority’s yuan positions — which reflect the amount of foreign currency held on its balance sheet — slumped by 383 billion yuan (US$55 billion) last month, central bank data showed.
A total of US$1.1 trillion of foreign currency has left China since August last year, when China devalued the yuan, Goldman Sachs said.
In the spot market, the offshore yuan spiked higher after the central bank strengthened its daily fixing, which limits onshore moves to 2 percent on either side.
The monetary authority raised the rate by 0.28 percent, the most in nine sessions, to 6.9312 per US dollar yesterday. That was stronger than an Oversea-Chinese Banking Corp Ltd (華僑銀行) prediction of 6.9463 and a Mizuho Bank Ltd projection of about 6.9600.
“The fixing was very, very strong,” Mizuho Asia currency strategist Ken Cheung said in Hong Kong. “The PBOC [People’s Bank of China] is sending a signal that it wants to slow the depreciation pace when the onshore sentiment has been deteriorating quickly and capital is leaving the nation quickly.”
The offshore yuan surged 0.36 percent to 6.9424 per US dollar as of 2:01pm in Hong Kong, while the onshore rate gained 0.1 percent.
The yuan traded in Shanghai is heading for a loss of 6.7 percent for this year, the most since 1994.
Ten-year government bonds fell, with the yield rising 5 basis points to 3.4 percent, while one-year interest rate swaps rose 5 basis points to 3.5 percent.
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