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Chinese investors dumped the most US stocks and bonds in four years in August, adding to speculation that Beijing moved to give itself greater firepower in its defence of the renminbi.
About $15bn of the total $21.2bn in net sales came from disposals of US Treasuries, according to data from the US Treasury Department, which captures trades by investors such as the People’s Bank of China, mutual funds and private investors. Sales of equities totalled about $5bn — a record for monthly sales of US stocks by Chinese investors — while investors also sold agency bonds.
The surge in sales of US securities coincided with efforts by Beijing to step up its defence of the renminbi’s dollar exchange rate, which has come under pressure from slowing economic growth and capital outflows.
“There is speculation in the market that this reflects China cashing out of Treasuries in order to add to their reserves to defend the renminbi,” said Stephen Innes, managing partner at SPI Asset Management.
China’s currency has fallen 5.7 per cent against the dollar this year, as a widening interest rate differential between Chinese and US government debt has driven foreign investors to pull money out of the country’s bond market.
Slowing economic growth and a liquidity crisis in the property sector have also stoked concerns over capital flight and added further downward pressure on the currency.
Investors had grown concerned in August over the ability of the central bank to defend the renminbi from further falls. However, Innes said it had since had greater success in mitigating downward pressure by setting the currency’s trading band higher than investors had expected and having state-run lenders intervene in the market on its behalf.
“We really don’t know for certain what’s going on at the central bank, but we can assume it’s probably a combination of factors,” Innes said, adding that the PBoC’s foreign reserves had held steady in recent months.
But while there was no direct confirmation of Chinese investors’ motives for selling off US securities in August, analysts said the timing of the sales lined up with a floor in the renminbi’s dollar exchange rate.
“In August we started to see a change in PBoC policy,” said Ken Cheung, chief Asian foreign exchange strategist at Mizuho Bank. “That was when they started to put foreign exchange stability at the top of the policy agenda thanks to capital outflow pressure.”
The sell-off also came ahead of a rout in US government bonds over the past two months that has sent the benchmark 10-year US Treasury yield to its highest level since the early stages of the global financial crisis.
