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Goldman Sachs: Tighten Stops On 3-Year CGBs On US Investment Restrictions

CNY

Goldman Sachs note that "portfolio flows into China's domestic securities markets have likely contributed to the Yuan's strong run in recent months. For instance, we estimate that cross-border flows from mutual funds and ETFs have totalled more than $11bn for both equities and fixed income this year. Our colleagues in Asia credit strategy believe we are on track for $1 trillion of overseas inflows into China's bond market between 2015 and 2025. Favourable medium-term portfolio flow trends are a key reason for our bullish Yuan forecasts. However, over the near-term the Trump Administration's recent executive order prohibiting US investment in certain Chinese companies could weaken portfolio flow momentum and thereby weigh on the currency (the order becomes effective on January 11, 2021). Our equity strategy team estimates that the order could affect 42 listed firms and result in $14bn in outflows if US holders were forced to fully divest; outflows could be twice as large if major index providers also remove these securities from their benchmarks. We should learn more from the index providers over the next two weeks. We continue to forecast further upside in the medium term, but after a sharp run in CNY since the summer, we tighten stops on our long FX-unhedged 3y CGBs recommendation."

MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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