China: Economy ending the year on a more solid footing - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the investor concerns over the performance of China’s economy peaked at the start of this year and have since eased supported by policy stimulus.

Key Quotes

“Economic reports released overnight provided further evidence that China’s economy is ending the year on a more solid footing. The reports revealed that the retails sales accelerated to annual growth rate of 10.8% in November which was the fastest pace since December of last year, and industrial production accelerated more modestly to an annual rate of 6.2% in November. It leaves China’s economy on track to meet the government’s target for growth this year of between 6.5% and 7.0%. Policy stimulus has helped to support economic growth but it has failed to significantly dampen capital outflows which have remained persistent keeping the renminbi under downward pressure. USD/CNY is on course increase by around 7% this year.”

“The improved cyclical momentum for China’s economy has proven more successful at providing support commodity related and emerging market currencies. It is one reason why emerging market currencies have proven less sensitive to the recent adjustment higher in US and global yields. Global growth momentum is strengthening broadly as well both in advanced and emerging economies eroding the appeal of low yielding and traditional safe haven currencies like the yen.”