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Our investment professionals share and challenge each other’s views, creating a diverse marketplace of ideas for the Wellington Blog.

The Chinese government’s aggressive regulatory crackdown on the country’s private technology companies (most recently, the online education sector) has shaken investor sentiment toward a range of Chinese assets, causing China’s equity and bond markets alike to swoon in recent days. The crackdown comes as Chinese policymakers embark on the delicate balancing act of redefining the role of private enterprise in China, versus the often-competing objectives of the nation’s common prosperity and social responsibility.

Here’s a distillation of our global fixed income and emerging markets debt teams’ latest views on some of the potential investment implications.

Fixed income investment implications

China equities and sovereign bonds, along with the Chinese currency, abruptly sold off in unison following the government’s latest regulatory actions during the week of July 26. But most Chinese household wealth is still mainly invested in…

MACRO
MARKETS
Jitu Naidu
Investment Communications Manager
Boston

A key pillar of my largely favorable outlook for China, including potential asset-price outperformance, lies in my directional view on the Chinese yuan (CNY). I continue to believe the CNY is likely to appreciate, or at least remain stable, over the next 12 to 18 months and beyond. Indeed, I think one of China’s challenges over the next few years will be how to contain its ongoing currency strength, rather than how to defend against currency weakness.

Here are the five reasons why I’m still bullish on the CNY.

1. China’s relative interest-rate differential is near the top of its historical range and may stay elevated going forward. For example, the spread between China’s 10-year government bond yield and that of the 10-year US Treasury note was recently at a decade-long high. As a result, I expect Chinese fixed income assets to…

MACRO
Santiago Millan headshot
Santiago Millán
CFA
Macro Strategist
Hong Kong
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