More international capital is likely to flee from Western markets to Asia, according to experts
The unfolding banking crisis in the US and Europe, which has shattered investor confidence in the Western financial system, could highlight China as a “relative safe haven,” economists at Citi said in a note seen by CNBC.
The Chinese economy could see accelerated expansion this year, giving the country a “hedge” for growth while economies in the US and Europe face heightened risk of financial disruption, according to the note.
“We have long been discussing our view that China can be a major growth hedge this year – if anything, recent global banking stresses perhaps have strengthened this thesis,” a team led by Citi’s Chief China economist Xiangrong Yu reportedly stated.
“China could at least be a relative ‘safe haven’ given its growth premium, financial soundness, policy discipline and the new political economy cycle,” the economists argued.
They pointed to the recent decision by the People’s Bank of China (PBoC) to cut its reserve requirement ratio (RRR), saying the move showed “reassurance of policy support amid global volatilities.”
The regulator reduced the ratio for almost all banks by 25 basis points last week, with the move widely viewed as an attempt of ensuring liquidity in the banking system.
“Perhaps taking lessons from what the US has been going through in recent years, the PBoC has been prudent in easing even during the pandemic era and may quickly switch to a wait-and-see mode once growth is back on track,” the analysts wrote.
They also noted the Chinese government’s restructuring earlier this month as part of the effort to ease financial risks.
According to CNBC, Citi also expects to see the onshore yuan strengthening against the US dollar as soon as September, which would bring the renminbi to its strongest levels since April last year.
“With the unintended and undesirable from aggressive interest rate hikes surfacing abroad, capital inflows into China could resume after they reopen trade if the recovery thesis plays out and political rerating is steadily ongoing,” Citi concluded.
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