SINGAPORE: Long positions on China's yuan rose to a more than five-month high, a Reuters poll showed, as investors bet that a recent deluge of foreign fund flows into the country's equity markets would continue on the back of economic recovery optimism.
A state-endorsed rally in Chinese stocks drove share prices to five-year highs this week and spurred a retail investor splurge, after data last week pointed to a brisk pickup in services activity.
The official China Securities Journal on Monday called for a healthy bull market in stocks to strengthen Beijing's diplomatic hand.
Bullish positions on the yuan climbed to their highest since late January, the poll of 16 respondents showed.
"With margin debt in Chinese equity markets still far from 2015 highs, leverage is not a concern yet and we see scope for equity inflows to continue," said Wei Liang Chang, a macro strategist with DBS Bank.
While coronavirus cases continue to rise at an alarming rate, extensive liquidity and stimulus measures unveiled by central banks across the region have helped sustain investor appetite for riskier Asian assets.
At the same time, Asian currencies have also benefited from zero or negative interest rates in developed economies sending investors on a hunt for higher yields. Market participants turned bullish on the Indian rupee for the first time in more than five months.
The currency last week strengthened to its highest level in more than three months, helped by steady foreign investment inflows and the central bank's non-intervention in the spot market. Overseas investors purchased $2.89 billion worth of Indian equities last month.
Elsewhere, bets on Indonesia's rupiah turned bearish for the first time since mid-May, as prospects for a rate cut increased after inflation came in below the central bank's target range. Sentiment towards the Philippine peso improved, with long positions climbing to their highest since early December.
Despite a continued spike in coronavirus cases and an unexpected 50 basis point rate cut by the central bank, the peso remains Asia's top performing currency so far this year.
"It seems that investors are willing to overlook the current negative policy rates and look to a sustained run by PHP with the current account surplus now a possibility," said Nicholas Mapa, ING's senior economist for the Philippines, adding that corporate dollar demand was expected to remain low.
"As many economists have quipped, the peso's strength is driven by the inherent weakness of the economy."
The Asian currency positioning poll is focused on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and the Thai baht. The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long US dollars.