Barings sees opportunities in the Chinese yuan and the country’s 10-year bond

30-May-2020 Intellasia | CNBC | 6:02 AM Print This Post

The Chinese yuan has weakened considerably in recent days, as US-China tensions reignite and investors weigh the uncertainty over Beijing’s proposed a new national security law for Hong Kong.

There is “value” for the Chinese currency at these current levels, according to Barings’ Head of Greater China Investments, Khiem Do.

“For the next 12 months, we believe that the yuan will trade somewhere between 6.8 against the US dollar to 7.2,” Do told CNBC’s “Street Signs” on Wednesday.

The onshore yuan which trades in the mainland and is tightly controlled by China traded at 7.1579 per dollar on Wednesday afternoon Singapore time.

On Monday, the People’s Bank of China said the official yuan midpoint at its weakest since the 2008 global financial crisis, according to Reuters. Every morning, the Chinese central bank sets a so-called daily midpoint fix which the currency is then allowed to trade within a 2 percent band above or below.

The yuan’s offshore counterpart, which trades more freely that the onshore currency, changed hands at 7.1737 against the dollar. Earlier on, it had weakened to 7.1755 per dollar its weakest level since September 4, 2019 according to Reuters.

‘Good value’ in China’s 10-year bond

In addition to finding investing opportunities in the yuan, Do also said there’s value in the current Chinese 10-year bond rate.

As of Wednesday afternoon Singapore time, the yield on the Chinese 10-year bond stood at 2.707%.

Yields around those levels represent more value compared to other bond markets elsewhere, Do said.

“The Chinese 10-year bond rate at about 2.6 (percent) or thereabout actually presents a lot more value relative to the… other OECD bond markets,” he said referring to countries in the Organisation for Economic Cooperation and Development.

“If you look at the US bond market, it’s trading at about 0.7%,” he said, referring to the yield on the benchmark US 10-year Treasury note, which was last at 0.6916%. “If you look across… Europe, it’s mostly negative.”

“We think that actually the Chinese 10-year government bond rate, at about 2.7%, is very good value,” Do said.


Category: China

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