Global investors snatch up Chinese yuan assets amid recovery prospects

Bullish on China's head start in economic recovery in 2023, global investors are lining up for yuan-denominated assets.

Market data shows that net overseas capital inflow into shares traded at the Shenzhen and Shanghai bourses hit a single-month record of 131.146 billion yuan (about 19.4 billion U.S. dollars) in January, more than the whole of 2022.

The MSCI China Index rose nearly 12 percent last month, while Morgan Stanley reiterated its recommendation on investing in Chinese equities.

Industry insiders say the recent inflow is far from an opportunistic fever. Overseas investment in China's securities market will gradually increase as China's economic recovery quickens, and yuan assets become more investment-worthy with a stronger safe-haven appeal, said Wang Chunying, deputy head of the State Administration of Foreign Exchange.

Overseas capital actively participated in China's securities market in recent months, Wang noted. Official data shows that in December, overseas holdings of Chinses mainland bonds and stocks logged net increases of 7.3 billion U.S. dollars and 8.4 billion U.S. dollars, respectively. In the first half of January alone, net overseas investment in China's bonds and stocks hit 12.6 billion U.S. dollars.

The strengthening Chinese yuan also heartened investors. The Chinese currency has firmed around 3 percent since the beginning of this year, continuing a trend that began last November.

The advantages of buying yuan assets speak louder to global investors as they bet on the Chinese economy to become the first to recover in 2023.

In late January, the International Monetary Fund (IMF) lifted its forecast for China's economic growth in 2023 to 5.2 percent from a previous prediction of 4.4 percent. Investment banks, including Morgan Stanley and Goldman Sachs, have also upgraded their growth forecasts for the world's second-largest economy.

Industry insiders eye consumption as a main driver of China's recovery, which will likely start at full throttle in the second quarter after a shorter-than-expected adjustment period.

"China's economic recovery this year could be a major hedge against global economic downturn," said Yu Xiangrong, China chief economist of Citigroup.

The IMF said global growth is projected to fall from an estimated 3.4 percent in 2022 to 2.9 percent in 2023. Forecasts from the United Nations and the World Bank stood at 1.9 percent and 1.7 percent, respectively.

Analysts said the expansion of an economy of China's size would contribute markedly to global growth and benefit economies like Japan, Europe, and commodities exporters.