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  Market Analysis
European Debt Crisis Not Eliminated, Capital Flow to China and Asia
Since the financial crisis, govern- ments implemented quantitative easing measures to rescue the severe economies. When the economy was gradually picking up, Europe could not keep pace with the other nations, and was forced to maintain the relative measures which deteriorated the government financial situation and led to the European debt crisis. Even though the Euro Region has introduced €750 billion rescue package in May, market is in doubt whether it is sufficient to ease the problem, and Euro Region may move towards disintegration and euro may disappear eventually. Although the U.S. economy has recovered gradually since this year, the recent announced economic statistics missed market expectation and its recovery rate may be dragged down by the European issue.
Even though the economy remains uncertain, China is still the focus of investment markets as compared to other markets. China's economic growth is expected to sustain with first half of GDP maintained at higher than 9%. While external factors would affect its exports, continuous strong domestic consumption demand attracts foreign funds inflow. According to the Ministry of Commerce of PRC's latest statistic, foreign direct investment has recorded US$8.132 billion in May and its monthly growth rate is being widen. The People's Bank of China has recently announced a further reform on RMB exchange rate regime to enhance its flexibility. Although the statement did not mention whether the reform would be on the expansion of exchange rate floating band or one-off large-scale appreciation, market expects RMB valuation will be raised steadily. The People's Bank of China then also announced measures to increase 18 provinces, municipalities and the municipalities directly under the jurisdiction of Chinese Government as RMB settlement points and widen the cross-region settlement scope from trading settlement to include trade in services and other settlements, which may stimulate the demand on RMB and the relevant investment products will continue to be launched. This is a big step forward for RMB moving to internationalization. With a series of actions taken by the central bank, China's economic growth is expected to be sustainable with capital inflow.
Apart from China, Asia is also at the spot of economic growth. With relatively low national rate of debt and huge foreign exchange reserves, investment risk in Asia will be lower than that of US and Europe. Furthermore, China's domestic consumption demand growth would stimulate Asian exports and therefore, Asian currencies are expected to follow RMB to appreciate and will attract capital inflow to the region. As such, the economic prospects of China and other major Asian countries will remain positive.
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Treasury Product Management (Investment)
Global Markets, BOCHK |
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