SHANGHAI/SINGAPORE (Reuters) – Foreign investors were net purchasers of onshore yuan bonds in June, while expectations in China’s foreign exchange market remain stable and cross-border capital flows are basically balanced, a state media commentary said late Wednesday.
The remarks by Financial News, a publication backed by the People’s Bank of China (PBOC), come as the Chinese currency has faced renewed downside pressure.
The yuan is one of the worst-performing Asian currencies this year, knocked nearly 5% lower against the dollar by a slowdown in China’s economy and widening yield differentials with the United States. [CNY/]
“Although volatilities in the yuan have picked up in the short term, solid fundamentals should offer support,” the newspaper said.
“China’s economic recovery will continue to improve, and policies will further stimulate the vitality of the real economy. Accordingly, the Federal Reserve’s interest rate hike cycle is drawing to a close, the dollar’s strength is less sustainable and spillover effects are expected to diminish,” it said, adding that yuan-denominated assets remained attractive.
Official June data is not published yet, while earlier data showed that overseas institutional investors increased their holdings of China’s onshore bonds in May.
Market participants typically took commentaries in state media as official messages to the currency market during previous rounds of yuan depreciation.
The newspaper also said China had enough policy tools to deal effectively with potential risks.
“Even if the yuan exchange rate market has a panic unilateral trend, there are abundant tools to calm the ‘herd effect’ and ensure the smooth operation of the foreign exchange market,” the newspaper said.
(Reporting by Winni Zhou and Tom Westbrook; Editing by Mark Potter)
