CNY: China extends efforts to dampen capital outflows - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the main movers during the Asian trading session have been the Chinese renminbi and South African rand as the renminbi has strengthened supported by reports that the Chinese government is poised to impose tighter restrictions on outbound foreign investment in an attempt to dampen capital outflows.

Key Quotes

“According to sources who have seen a draft document outlining new rules, the State Council will ban outbound investment deals worth more than USD10 billion or mergers & acquisitions above USD1 billion if they are outside the Chinese investors core business. State-owned enterprises will also not be allowed to invest more than USD1 billion in foreign real estate. The report highlights that non-financial outbound investment by Chinese companies has totalled USD146 billion through the first ten months of 2016 already exceeding the record high of USD121 billon recorded in the whole of 2015.”

“The election of President Trump has increased downside risks for the renminbi by encouraging further capital outflows from China. The renminbi has been held relatively stable against a basket of currencies of its major trading partners since the US election while weakness has accelerated against the US dollar lifting USD/CNY closer towards the 7.0000-level for the first time since May 2008.”

“It has also been reported overnight that the Chinese government is stepping up efforts alongside the PBoC to tighten mortgage lending in areas where house prices are deemed as overheating. Personal home mortgages have increased robustly by 35% in the year to the end of September.”