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TD on China Flows And CNY

CHINA
  • China appears to have now stopped publishing the data, but April saw a third straight month of foreign investor bond outflows to the tune of $16.4bn following outflows of $17.7bn and $12.7bn in March and February, respectively.
  • In total, China has seen a record net $36.5bn in bond outflows YTD compared to inflows of $56.1bn over the same period last year, a stark reversal.
  • Relatively higher US rates, weaker CNY, constrained credit growth and investor concerns over China's neutral stance on the war in Ukraine, have combined to hurt foreign investor sentiment towards China's markets.
  • While the pace of outflows is likely to slow, foreign investors are unlikely to rush back into Chinese bonds.
  • Equity flows have also registered renewed weakening; YTD stock connect outflows total $6.0bn vs. inflows of $21.2bn in the same period last year. Hedge funds positioning in Chinese bonds weakened sharply but may have bottomed.
  • Weak portfolio flows, likely worsening in China's current account and likely slower direct investment flows, mean that underlying support for CNY has worsened, leaving the currency vulnerable to further depreciation.
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