HONG KONG: China's yuan rose to a one-week high on Monday as a stronger fixing and signs that the economy is stabilising fuelled a rebound in capital flows towards Chinese assets.
The renminbi has proved to be a beneficiary from growing worries about the ability of some Asian policymakers to defend their currencies in the face of spreading aversion towards emerging market assets, particularly towards countries which have deteriorating economic fundamentals.
It briefly rose to 6.1176 per US dollar on Monday, its highest since Aug. 19, and is on course for a second consecutive monthly rise.
The gains comes at a time when Chinese government bonds have suffered sharp losses with 10-year bond yields briefly hitting their highest level in nearly two years at 4.09 percent last week.
"The divergence between the yuan and the onshore bond market reflects the different perceptions investors have towards them," said Ju Wang, senior FX strategist at HSBC in Hong Kong.
"As China's external balance sheet is strong, the yuan has served as some sort of a safe haven amid this EM sell-off. But the bond market reflects a moderately cautious monetary policy and the various credit concerns which is pushing yields higher."
China's economy is showing clearer signs of stabilization and positive change, helped by some external improvement, and is on track for the 2013 growth target of 7.5 percent, the state statistics bureau said on Monday.
In a sign on how investor perception towards the world's second biggest economy has flipped in recent weeks from extreme bearishness towards cautious optimism, an index of China listed companies in Hong Kong has risen by a seventh since early July.
That has also filtered towards the offshore yuan bond market where a Bank of China bond index has returned 0.5 percent so far in August, a rare bright spot in terms of returns for emerging market bonds in an otherwise bleak landscape.
And there are early signs that capital inflows are set to resume in August after rare outflows in June and July.
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