(Yicai Global) Jan. 9 -- China’s foreign exchange reserves will likely increase further each quarter of this year, after climbing by USD98.7 billion over the last quarter of 2022, according to Zheng Houcheng, director of Yingda Securities Research Institute.

The country’s foreign exchange reserves totaled USD3.1 trillion as of last month, a gain of USD10.2 billion from November, figures released by the State Administration of Foreign Exchange on Jan. 7 showed.

As a result of monetary policies, expectations in major economies, and global economic data, the US dollar index has declined and global bond and stock prices have fallen, said Ding Zhijie, director of the Foreign Exchange Research Center, a part of SAFE.

The net northbound flow of funds into the Shanghai and Shenzhen stock markets exceeded USD35 billion in December, indicating that overseas investors continue to hold bullish views on China’s economic development and capital market, said Wen Bin, chief economist at China Minsheng Bank.

Economies such as the United States and Europe met with high inflation and interest rate hikes in 2022 that had not been seen for 40 years, triggering a decline in stocks, bonds, and foreign exchange rates, said Guan Tao, global chief economist with BOC International China.

China experienced monthly declines in foreign exchange reserves throughout the first three quarters of last year, except in May and July. The reserves fell to around USD3 trillion by September, the lowest since the end of April 2017.

The reserves are likely to rise quarter by quarter in 2023, Zheng predicted, given that the US purchasing managers’ index for manufacturing was 48.4 in December, remaining in contraction territory for the second straight month. In addition, US inventories are at high levels compared with a year earlier, indicating that sales are slowing.

The Federal Reserve is likely to cut interest rates in the second half of 2023, considering that long-term yields were lower than short-term yields in mid-October, Zheng said.

In the context of a US recession and higher expectations for rate cuts, the US dollar index and 10-year US bond maturity yields are likely to come under pressure, which will be favorable for growth in China’s forex reserves, Zheng added.

Editor: Tom Litting