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China state media warns investors to avoid Yuan in 2023

China state media warns investors to avoid Yuan in 2023

China state media warns investors to avoid Yuan in 2023

Chinese Yuan

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  • The yuan in China has risen 2.2% against the dollar this year.
  • The currency has been propelled by hopes for an economic revival.
  • Three state-run newspapers advise investors to prepare for more foreign exchange volatility.
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Following more than a week of significant yuan increases, three state financial journals in Shanghai and Beijing cautioned in a front-page commentary on Tuesday that investors in China should steer clear of Chinese Yuan risk and prepare for more foreign exchange volatility.

Although the currency may have gained strength, they cautioned that this year it would still be erratic in both directions.

The newspapers almost definitely received instructions from the government to run essentially the same story on their front pages on the same day.

This year, the yuan has grown 2.2% against the dollar, reaching a nearly five-month high on Tuesday and partially erasing 2022’s annual loss, which was the most in 28 years. The currency has been propelled by hopes for an economic revival after the nation ended financial controls in late November and early December.

“Even if the depreciation pressure has diminished, two-way volatility in the yuan exchange rate will still be the norm in 2023,” the Securities Times said.

The yuan would continue to face devaluation pressure because of China’s current account surplus’s decline and the widening yield differential with the US, it was cautioned.

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This Beijing-based publication recommended investors approach foreign exchange with risk neutrality, as with the other two.

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A significant factor affecting the yuan in 2022 was the Federal Reserve’s increasing of interest rates and the accompanying rise of the dollar, as higher US yields drew capital to dollar-denominated assets.

The expectation on the market is that the US central bank will keep raising interest rates at its upcoming meetings until it is certain that inflation has peaked.

According to the Beijing-based China Securities Journal, rising economic hopes in China continue to be the key factor influencing the value of the yuan.

“After a reasonable correction, the yuan will likely continue to be subject to two-way volatility, gradually converging towards a reasonable range in the long run,” the newspaper said.

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According to The Shanghai Securities News, local factors will dominate this year in determining the value of the yuan. The rate of progress in the underlying economic conditions would be the main concern.

Recent economic measures, such as December manufacturing activity, indicate that production disruption brought on by rising Covid-19 infections as a result of social constraints being lifted in December may have weighed on demand.

Numerous investment institutions, including Nomura and JPMorgan, have lowered their projections for the fourth quarter and 2022 of the Chinese GDP.

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