Global investors are optimistic about RMB assets

Since the beginning of this year, the overall investment situation of foreign investment in China's capital market has been improving, and the enthusiasm of foreign investors for investing in RMB assets has significantly rebounded. The Shanghai headquarters of the People's Bank of China recently released a March 2023 report on the interbank bond market for overseas institutional investment. As of the end of March 2023, overseas institutions held RMB 3.21 trillion in interbank market bonds, accounting for approximately 2.5% of the total custody volume of the interbank bond market. This also means that in March of this year, foreign investors' holdings of RMB bonds increased by about 10 billion yuan month on month.
RMB assets have become the target of foreign investment pursuit. "Chen Zhiheng, Deputy Director and Researcher of Beijing Digital Planning Technology Center, stated in an interview with China Trade News that the valuation of domestic stocks in China is still at a low level, with high investment returns and good investment prospects in terms of both P/E ratio and P/B ratio.
The northbound funds, regarded as the "wind vane of international capital allocation for A-shares", have maintained net inflows since the beginning of this year. According to statistics from Tonghua Shun, as of April 21, the net inflow of northbound funds during the year was 188.1 billion yuan, exceeding the level of last year, conveying global investors' confidence in the prospects of China's economy and the performance of RMB assets.
Chen Zhiheng analyzed that in the current global economic environment, China's RMB assets have three advantages:
Firstly, RMB assets have the function of diversifying investment risks globally. At present, various international economies are affected to varying degrees by inflation and have the possibility of recession. The state of China's economy is showing stability and improvement in the international environment. According to data released by the National Bureau of Statistics, China's GDP grew by 4.5% year-on-year in the first quarter of 2023, with the growth rate of the primary and secondary industries exceeding 3%, and the growth rate of the tertiary industry increasing by 5.4%. China's economic recovery exceeded expectations, and macroeconomic indicators showed strong growth, providing a macro economic environment for preserving and hedging RMB assets, making it more competitive in the international market.
Secondly, the RMB exchange rate fluctuates in both directions, maintaining a stable currency value overall. In recent years, the RMB exchange rate has shown the characteristics of robustness and has remained basically stable at a reasonable and balanced level. Even in the complex and ever-changing external environment of 2022, the volatility of the RMB exchange rate is significantly lower than that of the yen, pound sterling, euro, and major emerging market currencies. The impact of exchange fluctuations on holding RMB assets is relatively stable.
Thirdly, the variety of RMB assets is abundant, which can meet the diversified allocation needs of overseas investors. On the one hand, China has a variety of investment categories such as the bond market, stock market, futures market, and a rich variety of RMB assets. On the other hand, the liquidity of China's assets is still good, and macroeconomic policies have autonomy, with relatively independent interest rates, exchange rates, and asset price trends, which is conducive to achieving stable investment returns.
Industry experts say that the continuous deepening of reform in China's capital market will also attract more foreign institutions to layout the Chinese capital market and invest in RMB assets. In the medium to long term, the allocation of A-shares by foreign investment will continue to increase, with some high-quality white horse stocks and growth stocks being subject to the continuous layout of foreign investment.
Andrew McFarrell, Global Chief Investment Officer of Fidelity International, stated that the current allocation of Chinese assets in global stocks and fixed income investments is significantly insufficient. As the weight of Chinese assets in global allocation gradually matches their position in the global economy, this situation will eventually change. I believe that the Chinese market has enormous investment potential
At the same time, China should also be vigilant against the risks such as the "grey rhinoceros" and "black swan" that may arise from the current complex international situation. In response, Chen Zhiheng stated that China should identify the focus of high-level opening up, continue to promote institutional opening up, further unleash institutional dividends and potential for economic and trade cooperation, in order to attract more investors to enter China's capital market. He suggested:
Firstly, we need to strengthen top-level design, steadily improve institutional openness such as rules, management, and standards, and promote high-quality development of China's capital market. At present, new forms of economy are emerging one after another, especially in the fields of digital economy, digital currency, financial technology, high-tech, etc., showing a state of blooming flowers. China can further improve the management system of the negative list of market access, promote foreign investment entry, and effectively promote China's economic development. Secondly, we need to continue to improve the risk prevention and control system for the opening up of the financial industry. Attracting foreign investment inevitably faces risks from international finance. While expanding financial institutional openness, we should still maintain the bottom line of avoiding systemic financial risks and maintain national financial security. Continuously improve the monetary policy regulation and macro prudential policy framework, further leverage the countercyclical regulatory role of monetary policy, and ensure that the economy operates within a reasonable range. At the same time, establish a systematic financial risk monitoring, evaluation, and early warning system, strengthen real-time monitoring and early warning of the market, and block cross market, cross regional, and cross-border risk transmission. In addition, it is necessary to actively participate in international financial governance and policy coordination. To form a high-quality capital market institutional opening up to the outside world, it is necessary to further strengthen cross-border financial regulatory cooperation and promote the establishment of a more fair and transparent global financial order. The main need is to strengthen regulation and international cooperation in areas such as accounting, auditing, and taxation. At the same time, strengthen bilateral and multilateral regulatory cooperation to achieve policy coordination in international finance.