(Yicai Global) April 21 -- Overseas investors will continue to invest steadily in China’s securities markets due to their strong need to diversify asset allocation, as well as the stable returns and high investment value offered by Chinese yuan-denominated assets, the spokesperson for the State Administration of Foreign Exchange said today.

Chinese stocks are a good investment choice given their low valuation, Wang Chunying said. The valuation of stocks on the mainland bourses is relatively low in terms of both price-to-earnings and price-to-book value ratios. So, their investment value is higher and the potential risks are lower, she said.

China’s bond market is the second biggest in the world now, meaning there is plenty of liquidity, Wang said. Globally, yuan-denominated bonds’ return on investment is less volatile that that of other currencies, with monthly returns fluctuating an average of 2.4 percent, compared with US treasury bond’s 6.6 percent. Thus yuan bonds have gradually become quasi-safe assets, offering stable prices and investment returns.

In January, foreign capital's net purchase of mainland shares hit a new record, and in March, the amount of Chinese bonds held by foreign capital increased from the previous month, she added.

And there is still space for the inflow of foreign capital as the economy rebounds and the financial markets continue to be opened up further. The proportion of foreign holdings of both Chinese bonds and stocks is relatively low at present so there is room for further investment.

Stable Exchange Rate

The yuan exchange rate has proved to be resilient in recent years and has always remained basically stable at a reasonably ample level, Wang said. The yuan fluctuated significantly less than the Japanese yen, pound sterling, euro and the main emerging market currencies last year even amid a complicated and changeable external environment, she said.

China’s gross domestic product is likely to expand 5.2 percent this year, 2.2 percentage point higher than in 2022, Wang said, citing the International Monetary Fund. By comparison, the global economy is set to grow 2.8 percent, 0.6 percentage points less than in 2022.

This shows that there is a very good foundation for the stable operation of China’s forex market, Wang said. Also, the country’s unswerving efforts to deepen reforms, expand high-level opening up and roll out policies to stabilize foreign capital and trade will further support the steady operations and healthy development of the forex market.

Recently, the US dollar exchange rate and interest rate both fell from a high level, and the yields of 10-year Chinese and US government bonds became less inverted, halving to a difference of 0.7 percentage point from the highest point of 1.5 percentage point, Wang said.

Enhanced yuan flexibility is playing a more notable role in stabilizing the international balance of payments and macro economy. More cross-border transactions are being settled in the redback, with volumes this year already close to half that of last year. This helps lower risks of currency misallocation in cross-border transactions.

Editor: Kim Taylor