(Yicai Global) May 16 -- The International Monetary Fund has raised the weighting of the Chinese yuan in its special drawing rights basket, an international reserve asset, for the first time since the redback became one of the global reserve currencies in 2016. Despite short-term setbacks, international investors will raise their holdings of Chinese assets in the medium and long term, analysts said.

The weighting of the yuan will increase to 12.28 percent from 10.92 percent from Aug. 1, the IMF said on May 14. The yuan will remain the third-largest weighting in the basket. The Washington-based organization decides the currency weighting based on member countries’ quota subscription.

In other adjustments, the IMF increased the US dollar’s share to 43.38 percent from 41.73 percent, while lowering that of the Euro, Japanese yen and British pound. The Euro will fall to 29.31 percent from 30.93 percent, the yen to 7.59 percent from 8.33 percent and the pound to 7.44 percent from 8.09 percent.

International investors will continue to raise their holdings of Chinese assets in the medium- and long-term, analysts said in recent interviews. This is despite the temporary outflows of foreign capital from the Chinese stock and bond markets this year on growing expectations that the US Federal Reserve will tighten monetary policy, geopolitical uncertainties and the slowdown in the country’s economic growth.

China accounts for 16 percent of the global economy but only makes up 4 percent of global capitalization-weighted indexes, Wei Zhen, managing director of international index compiler MSCI, told Yicai Global earlier. Chinese stocks’ weighting in the MSCI All Country World Index is relatively low and global funds’ holdings of mainland stocks are even lower, all of which underline the fact that Chinese stocks are underweight, he added.

“The Chinese bond market is an excellent choice for global investors to diversify their asset allocation, especially as the country’s central bank tends to ease policies when the Fed starts to tighten them,” Wu Ziyu, head of fixed income at international assets management firm Aberdeen Asset Management in China, told Yicai Global, “The Chinese economy is basically independent from the US and the European Union in terms of growth and its bond market changes with the domestic macroeconomic environment.”

MSCI has suspended the increase of mainland stocks in the MSCI Emerging Markets Index for the past two years, but the inclusion factor is very likely to be raised in the medium to long-term as China continues to open up, analysts said.

Morgan Stanley is more optimistic about mainland shares than the offshore China market, the New York-based company said in its mid-year outlook. This is because mainland shares can profit from potential loose policies in the short term and stay consistent with long-term growth opportunities in information technology and the green economy. China’s new personal pension scheme will also encourage more institutional investors to participate in the stock market.

Editor: Kim Taylor