- CNH (offshore yuan) eyes 2023 lows as property sector concerns drive contagion fears
- China’s top Wealth Manager misses payment
- Country Garden suspends trading on onshore bonds
The offshore yuan is becoming a trade that more people are starting to pay attention to on Wall Street. The outlook for China is turning rather bleak and that has made the yuan short an easy trade for some traders. China was expected to hit 5% growth this year and that still could happen even with the property sector weighing on sentiment as the base effects will help the data. The concern for many traders is that it seems like China might not be able to grow above that 5% level in the next year and that could have severe ramifications for global growth expectations.
Over the weekend, the spotlight fell on China’s real estate market. Country Garden, one of China’s top property developers, suspended trading in 11 of its onshore bonds. Everyone is expecting restructuring as they are too important for China to allow them to default. The other big story was that Zhongzhi Enterprise Group, one of China’s largest private wealth managers missed payments on multiple high-yield investment products. This financial entity manages 1 trillion yuan ($138 billion), which makes it a big player in the commercial and investment banking, and also private equity and wealth management.
It seems fears for the property sector and shadow banking are taking centerstage and this should put contagion fears back on the table for China’s broader economy.
The USD/CNH (offshore yuan) may extend to 7.40 by end of year as it continues its bullish trend. The pressure is building for the Chinese government to deliver more stimulus and that could be the big risk on betting against the yuan. If this bullishness continues, initial resistance may come from the 7.30 level. To the downside, we could see this bullish move higher stall if Chinese slowdown fears ease. If optimism returns that the mainland economy will hold up, the yuan could rally towards the 7.10 region.