Chinese Equities & Yuan Receive Reprieve After Torrid Run

The yuan benefitted from a shunt higher in Chinese equities and related foreign inflows on Friday, with USD/CNH showing around CNH7.0875 at typing, off lows of CNH7.0823.

• Citi note that “the nature of the (yuan) bounce looks shaky and tactical, rather than having a fundamental driver, suggesting it may be short-lived. Bearish CNH remains a popular view among our desks and strategists.”
• Spill over from the bid in U.S. equities (including a notable shunt higher in the Chinese Golden Dragon index) and some interest in buying the China dip, with some of the key equity benchmarks in a technical bear market/technically oversold territory, were noted as the CSI 300 added 1.4% and the Hang Seng moved 4% higher.
• In terms of sector specifics, stimulus-based hope surrounding the Chinese property sphere further facilitated a bid in property developer stocks.
• The recent run of weakness in both the yuan and Chinese equities on the back of increased pessimism surrounding the Chinese economic recovery will mean that positioning factored in as well.
• We also received news that Goldman Sachs is keeping its MSCI China overweight recommendation, albeit with a lower price target.
• Chinese 5-Year IRS rates and 10-Year CGB yields have nudged higher.