Investors Warned As China Adjusts Monetary Policy

By Editorial 13 March, 2014

The People's Bank of China has been allowing the value of the renminbi to decline as it seeks to reduce flows of foreign currency, and prevent the country's credit markets from overheating, according to Fran Rodilosso, fixed-income portfolio manager for Market Vectors ETFs.

"The perception in the market has been that the renminbi could only appreciate in value," Rodilosso said. "It looks now as if the Chinese have set out to dispel that belief with the People's Bank of China likely to allow the currency to trade in a wider band, with more latitude to move to the downside."

He continued: "Renminbi-denominated equities and debt are indeed [accustomed] to a steady appreciation, with the currency one of very few to appreciate versus the US dollar in 2013. The prospect of greater currency volatility is something that investors will likely start to consider, and ultimately may lead them to demand more compensation, in the form of yield."

"A weaker currency does have the effect of making it cheaper to repay debt denominated in that currency, potentially a small credit positive for some issuers," Rodilosso said. "On the other hand, holders of the dollar debt of Chinese issuers, particularly those domestically-oriented companies without significant dollar revenues, might have greater reason to be concerned from a credit perspective."

Tags: Investment | China | Currency | Trade | Expats |


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