logo
  • Insights

    Liquidity Insights

    • Liquidity Insights Overview
    • Audio Commentaries
    • Case Studies
    • Leveraging the Power of Cash Segmentation
    • Cash Investment Policy Statement
    • China Money Market Resource Centre
    • Intro to Liquidity Products

    Market Insights

    • Market Insights Overview
    • Eye on the Market
    • Guide to the Markets
    • Market Updates
    • Guide to China

    Portfolio Insights

    • Portfolio Insights Overview
    • Currency
    • Fixed Income
    • Long-Term Capital Market Assumptions
    • Sustainable Investing
    • Strategic Investment Advisory Group
  • Resources
    • MORGAN MONEY
    • Account Management & Trading
    • Multimedia
    • Announcements
  • About us
  • Contact us
Skip to main content
  • English
  • Role
  • Country
  • MORGAN MONEY LOGIN
    Search
    Search
    Menu
    You are about to leave the site Close
    J.P. Morgan Asset Management’s website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan Asset Management isn’t responsible for (and doesn't provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan Asset Management name.
    CONTINUE Go Back
    1. What’s driving the Chinese yuan stronger and what’s next?

    • LinkedIn Twitter Facebook

    What’s driving the Chinese yuan stronger and what’s next?

    31/05/2021

    Chaoping Zhu

    Marcella Chow

    In essence, the central bank does not want investors to take the appreciation of Chinese yuan for granted.

    Chaoping Zhu

    Global Market Strategist

    Listen now

    The Chinese yuan has appreciated by close to 3% against the U.S. dollar since the end of 1Q 2021 to 6.37, the strongest since May 2018.

    There are a number of factors driving the Chinese yuan stronger, in our view.

    First, the U.S. dollar index declined in recent months and this is typically associated with a stronger Chinese yuan given it is managed on a trade-weighted basis. However, we also note that this trade-weighted renminbi index has also appreciated by around 0.8%. Hence, there are other factors at play when it comes to driving the currency stronger.

    Second, China’s export performance remains robust. Total exports of goods expanded by 43.8% in the first four months of 2021 compared with the same period last year. Total trade surplus hit USD 160bn, compared with USD 58bn in 2020 and USD 90bn in 2019. The recent COVID-19 outbreak in some Asian economies, such as India, the Association of Southeast Asian Nations and northeast Asia have disrupted their production and some orders are diverted back to China. This could continue in the near term, especially as we approach the peak season of production ahead of the holiday seasons in the U.S. and Europe.

    Third, Chinese capital markets have also enjoyed strong international inflows as the onshore stock market has seen renewed momentum. CSI 300 (+4% in the past month) outperformed S&P 500 (+0.6%) and MSCI Asia Pacific (+1.3%). Net inflow northbound from Stock Connects hit a new high in April, with a total inflow of USD 16bn for April and May. Net inflow into the fixed income market was also sizeable at USD 8.3bn in April.

    There is also the market expectation that the People’s Bank of China (PBoC) could tolerate a stronger Chinese yuan in order to counter the rise in international commodity prices and help cool down cost pressure for domestic producers and tame inflation. It has been more tolerant of Chinese yuan exchange rate movements in the past 12 months without significant intervention in the foreign exchange market.

    That said, the central bank has started expectation management, with PBoC Vice Governor Liu Guoqiang reiterating the central bank’s desire to maintain Chinese yuan stability around a reasonable equilibrium level, with two-way flexibility under market forces. On May 31, the PBoC also announced to increase the reserve requirement for foreign exchange deposits from 5% to 7%, effective June 15, which should marginally reduce the market’s foreign exchange supply. In essence, the central bank does not want investors to take the appreciation of Chinese yuan for granted. 

    EXHIBIT 1: CHINESE YUAN EXCHANGE RATE: CFETS RMB* VS. U.S. DOLLAR
    INDEX, JAN. 2016 = 100

    Source: China Foreign Exchange Trade Center, FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management.
    *CFETS RMB index is the China Foreign Exchange Trade System basket of 24 currencies traded against the Chinese renminbi. Past performance is not a reliable indicator of current and future results.
    Guide to the Markets – Asia. Data reflect most recently available as of 31/05/21.

    Investment implications

    We expect the Chinese yuan is likely to remain well-supported because of strong export performance, sizeable trade surplus and ongoing capital inflow into Chinese capital markets for both tactical and structural factors. The PBoC may opt to curb appreciation momentum from time to time, but a stronger Chinese yuan has its benefits in keeping imported prices low and encourage international capital into the Chinese markets.

    A modestly stronger Chinese yuan should also help international investors to focus on the fundamentals in the equity and fixed income markets, instead of worrying about foreign exchange rate risks. We continue to see rich opportunities in both onshore equity and fixed income market in China. In equities, China’s economic stability should be further boosted by accelerating vaccination progress. China has already administered 640 million doses of vaccines. The key growth drivers in consumption, technological development and policy to reduce carbon emission should continue to play out in the long term. In fixed income, despite the ongoing monetary policy normalization, the global search for yield should persuade more investors to tap Chinese government and corporate bond markets. 

    0903c02a82b270f1

    EXPLORE MORE

    On the Minds of Investors

    What investment questions are on the minds of investors? Explore the questions investors ask frequently and find answers at J.P. Morgan Asset Management.

    Read more

    Guide to the Markets

    The J.P. Morgan Guide to the Markets illustrates a comprehensive array of market and economic histories, trends and statistics through clear charts and graphs.

    Read more

    Asset Class Views

    Get quarterly commentary and in-depth analysis on equities, fixed income and other asset classes, written by our senior investment teams.

    Read more

    The Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the program explores the implications of current economic data and changing market conditions. 

    For the purposes of MiFID II, the JPM Market Insights and Portfolio Insights programs are marketing communications and are not in scope for any MiFID II / MiFIR requirements specifically related to investment research. Furthermore, the J.P. Morgan Asset Management Market Insights and Portfolio Insights programs, as non-independent research, have not been prepared in accordance with legal requirements designed to promote the independence of investment research, nor are they subject to any prohibition on dealing ahead of the dissemination of investment research.

    This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

    J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.

    To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://am.jpmorgan.com/global/privacy.

    This communication is issued by the following entities:

    In the United States, by J.P. Morgan Investment Management Inc. or J.P. Morgan Alternative Asset Management, Inc., both regulated by the Securities and Exchange Commission; in Latin America, for intended recipients’ use only, by local J.P. Morgan entities, as the case may be. In Canada, for institutional clients’ use only, by JPMorgan Asset Management (Canada) Inc., which is a registered Portfolio Manager and Exempt Market Dealer in all Canadian provinces and territories except the Yukon and is also registered as an Investment Fund Manager in British Columbia, Ontario, Quebec and Newfoundland and Labrador. In the United Kingdom, by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions, by JPMorgan Asset Management (Europe) S.à r.l. In Asia Pacific (“APAC”), by the following issuing entities and in the respective jurisdictions in which they are primarily regulated: JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited, each of which is regulated by the Securities and Futures Commission of Hong Kong; JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), this advertisement or publication has not been reviewed by the Monetary Authority of Singapore; JPMorgan Asset Management (Taiwan) Limited; JPMorgan Asset Management (Japan) Limited, which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia, to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Commonwealth), by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919). For all other markets in APAC, to intended recipients only.

    For U.S. only: If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance.

    Copyright 2022 JPMorgan Chase & Co. All rights reserved.

    J.P. Morgan Asset Management

    • Investment stewardship
    • About us
    • Contact us
    • Privacy policy
    • Cookie policy
    • Binding corporate rules
    • Sitemap
    Decorative
    J.P. Morgan

    • J.P. Morgan
    • JPMorgan Chase
    • Chase

    READ IMPORTANT LEGAL INFORMATION. CLICK HERE >

    The value of investments may go down as well as up and investors may not get back the full amount invested.

    Copyright 2022 JPMorgan Chase & Co. All rights reserved.