Forex Flash: Chinese official hints at easier access to mainland markets – BBH

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FXstreet.com (Barcelona) - Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman notes that the Chairman of China Securities Regulator Commission (similar to the US SEC) said that China can increase by 10-fold the size of the two main channels by which foreign investors buy mainland financial assets.

"It can", Guo Shuqing said, "increase quotas under the Qualified Foreign Institutional Investors and the Renminbi Qualified Foreign Institutional Investors." Chandler notes that the latter would make it easier for Yuan in Hong Kong ( CNH ) to be used to purchase Chinese securities.

He sees that this lift helped lift Chinese shares by over 3%, their largest gain in a month. The Shanghai Composite´s 3% rise brings the gain to 19% off the multi year low near 1949 (the year of the Chinese revolution) in early December.

Chandler adds that China has gradually eased some capital market access rules, at the end of last year removing a ceiling on sovereign wealth funds and central banks ownership of Chinese securities. It also indicated it will launch an experimental program that would make it easier for some to buy foreign stocks and bonds.

Separately, China State Administration of Foreign Exchange ( SAFE ) indicated that it establish a new office that will channel some of the more than $3.3 trillion of reserves into supporting Chinese companies foreign direct investment. Data suggest Chinese companies are rapidly expanding their overseas presence. Direct investment rose by a quarter in the Jan-Nov 2012 period.

He feels that these developments say nothing about the near term direction of the Yuan. The dollar fell about 3% against the Yuan in the second half of 2012 and has since consolidated mostly between CNY 6.21 and 6.24, with a brief and shallow push through CNY 6.25 in mid-December. Chandler suspects that if risk comes off, the dollar can recover to re-test those mid-December highs.

Elsewhere, some observers have suggested that through the Yen´s depreciation, it will export inflation to China and higher inflation would be a reason that officials will angle for a strong Yuan. Chandler remains sceptical as the main factor behind the recent jump in Chinese inflation was vegetables and port and is clearly more weather than currency related. He writes, "Japan has not inflation to exports. The persistence of deflation is one of the drivers behind the LDP push for a weaker Yen."

He finishes by commenting that the macro-economic consideration of a weaker Yen is about competitiveness. Just as Chinese officials do not want to see the US dollar decline, they do not want their regional rival to gain a competitive advantage by depreciating the Yen.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Forex and Currencies

Referenced Stocks: CNH , SAFE

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