Resilience to Debt Crisis Makes Yuan the Only BRIC Winner
By Lilian Karunungan - Sep 13, 2011
China, with its centrally controlled economy, managed currency and restrictions on capital inflows, has become a haven for investors fleeing widening global debt turmoil.
The yuan is the only currency among the biggest emerging nations to strengthen against the dollar this quarter, and yuan- denominated notes in Hong Kong are the only domestic bonds among the so-called BRICs to provide a positive return. Sales of dim sum debt have tripled in 2011 and new loans in China rallied in August, after sliding in July.
Chinese markets have shown resilience as global equities tumbled 13 percent since Aug. 1 on concern the declining U.S. economy and European debt crisis will stoke the worldwide slowdown. Exports from China grew a more-than-forecast 24.5 percent in August from a year earlier, government data released on Sept. 10 showed. Italy, saddled with more debt than Spain, Greece, Ireland and Portugal combined, has sought support from the world’s fastest growing major economy for its bond market.
“The renminbi remained stable versus the dollar during the global crisis in 2008 and early 2009 while most of the rest of the Asian currencies fell sharply,” said Chia Tse Chern, co-head for fixed income in Singapore at UOB Asset Management, where he helps oversee the equivalent of $14 billion, including dim sum bonds. “High-grade renminbi bonds or those quasi-government renminbi bonds will remain resilient.”
Dim sum bonds, yuan debt issued in Hong Kong and accessible to foreign investors, returned 0.8 percent for dollar-funded investors this quarter, compared with losses of 7.4 percent for local-currency bonds in Brazil, 7.1 percent for Russia and 4.8 percent for India, according to indexes compiled HSBC Holdings Plc and JPMorgan Chase & Co.
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