Yuan treads water as inflows from MSCI decision seen modest

[SHANGHAI] China's yuan was flat on Wednesday after the US dollar inched down, largely ignoring the prospect of larger capital inflows from MSCI's decision to finally include some Chinese stocks in its emerging market index.

The People's Bank of China set the midpoint rate at 6.8193 per US dollar prior to market open, weaker than the previous fix of 6.8096.

The spot market opened at 6.8304 per US dollar and was changing hands at 6.8292 at midday, three pips firmer than the previous late session close and 0.15 per cent weaker than the midpoint.

The yuan has lost about 0.53 per cent of its value against the US dollar since June 14.

While the MSCI decision was likely to increase foreign investment into Chinese "A" shares when it comes into effect in a year's time, the fresh inflows - about US$12 billion, according to calculations by ANZ - may still be outweighed by outflows.

"We do not anticipate much impact on the CNY from the MSCI index inclusion," ANZ economists Khoon Goh and Raymond Yeung said in a research note.

Goldman Sachs and Credit Suisse held a similar view that the impact on the flow of funds would be limited, while HSBC economists and some asset managers said the MSCI decision would be positive for yuan sentiment in the near term.

"We think 'A' share inclusion will help strengthen RMB and improve its status as an international currency," said Victoria Mio, chief investment officer China at asset manager Robeco.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.38, firmer than the previous day's 94.14.

The global US dollar index slipped to 97.7 from the previous close of 97.76.

The offshore yuan was trading 0.02 per cent away from the onshore spot at 6.828 per US dollar.

Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.995, 2.51 per cent weaker than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.

REUTERS