- The USD/CNH has surged up to its highest level in six months at 7.08.
- Since late October 2022 the USD/CNH movement has had a strong correlation with China and Asia ex Japan equity markets.
- USD/CNH is still exhibiting a positive trend, which may cause further headwinds to China and Asia excluding Japan.
The earlier “China re-opening theme play” gains of +20% to +56% that were seen in the China benchmark stock indices and its proxies (such as CSI 300 & Hang Seng China Enterprises Index) from late October 2022 have almost been reduced by 50% till to date. In addition, the CSI 300 and HSCEI 2023 year-to-date returns as of 25 May have slipped to negative territory with losses of -0.8% and -5.6% at this time of the writing; the worst performers among the major developed countries’ benchmark stock indices.
The key reasons for such weakness have been lackluster leading economic data out from China and the “inaction” of PBoC to implement more accommodative monetary policies. More details were highlighted in our previous analysis, “China equities bulls in need of fresh liquidity”, click here to read.
A weakening yuan is adding another layer of headwinds for China equities & rest of Asia ex…
