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Strategies & Market Trends : Greater China Stocks

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From: Julius Wong	9/21/2011 7:00:16 AM
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China Faces ‘Hot-Money’ Surge on Financial Market Turmoil By Bloomberg News - Sep 21, 2011 Turmoil in global financial markets may be spurring a surge in flows of speculative capital into China as investors bet on the nation’s growth and prospects for gains in the yuan. Financial institutions’ yuan positions, accumulated from purchases of foreign exchange by the central bank, had a net gain of 376.94 billion yuan ($59 billion) in August, 72 percent more than in July and the biggest increase in five months, central bank data showed today. Economists watch the numbers for signs of inflows of so-called hot money. Inflows of capital may complicate central bank efforts to tame inflation and limit the risk of asset bubbles in the real-estate market. With lenders’ reserve requirements already at record levels, the People’s Bank of China may rely on selling bills to soak up cash. “It’s clear money is flowing into China if you consider the global turmoil last month and the low yields available elsewhere,” Shen Jianguang, a Hong Kong-based economist with Mizuho Securities Asia Ltd. said in an interview in Beijing today. “Given the liquidity crunch facing small and medium-sized enterprises it would be difficult for the PBOC to raise reserve requirements any further.” Inflows of money may add pressure for China’s currency to climb and help to suppress money-market rates. The People’s Bank of China set the yuan’s reference rate 0.17 percent stronger at 6.3772 per dollar today, the highest since 2005. The International Monetary Fund estimates China’s economywill grow 9.5 percent this year. bloomberg.com

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