Morgan Stanley: USD/CNY May Follow Broader USD, CNY Could Outperform NJA FX

Morgan Stanley note that "overall, our estimates indicate that foreigners hold US$4.6 trillion in Chinese stocks, with US$582 billion in A-shares, US$562 billion in ADRs and US$3.4 trillion in H-shares. We find that US investors hold US$2.21 trillion, with US$195 billion in A-shares, US$347 billion in ADRs and US$1.6 trillion in H-shares."

• In terms of risks to the CNY, they answer the following questions:
• "Will foreign equity selling cause CNY weakness? We believe that the impact should be limited as: 1) H-shares and ADRs are in HKD and USD so foreign selling doesn't have a direct currency impact; and 2) Northbound outflows (foreigners selling A-shares) could be offset by Southbound outflows (mainland investors selling H-shares) given asymmetrical sector distribution."
• "What's our view on CNY? The trade surplus is strong and the services deficit is small. A dovish PBOC actually encourages fixed income inflows rather than triggering capital outflows. Corporates continue to convert their USD holding at a high ratio. We believe that USD/CNY could move higher driven by a broad USD appreciation but CNY could outperform in Asia. We like 10-Year CGBs without FX hedge and long CNH/TWD."
• "What are the risks to CNY? Increasing errors and omissions in the capital account and FX depreciation leading to USD-hoarding behaviour."