China FX reserves turnaround is mildly disappointing - Nomura

China’s headline FX reserves rose by USD21.5bn in January to USD3161.5bn (Consensus: USD3170.0bn; Nomura: USD3189.9bn) and after adjusting for FX valuation and coupon payment effects, FX reserves fell by USD26.9bn in January after a USD10.6bn increase in December, explains the research team at Nomura.

Key Quotes

“Although this turnaround is mildly disappointing, we note that November saw a similar magnitude of adjusted drawdown at USD22.5bn.”

“Overall, we still see evidence of a relatively benign net flow backdrop that has been in place since August 2017. These include improvement in foreign inflows into Chinese bond and equity markets, slower outward M&A deals, and a robust trade surplus (with relatively high levels of FX repatriation).”

“We note that January bond holdings data from the China Central Depository & Clearing Co showed USD9.8bn of foreign inflows to interbank bonds after USD5.7bn of inflows in December. This is also the largest foreign bond inflow since September 2016 (USD11.5bn), just prior to RMB inclusion in the SDR basket. Net foreign equity inflows (Northbound) through the two stockconnects also rose to USD6.1bn in January from USD2.3bn in December.”