China’s foreign reserves fell in July
According to State Administration of Foreign Exchange, China’s foreign reserves fell by $4.1 billion in July to $3.20 trillion. The rise in reserves was attributed to the stronger yuan against the US dollar. The data suggest that capital outflows have been controlled tightly, while the yuan stabilized. The reserves rose by $13.4 billion in June to $3.21 trillion—the largest increase in the last 14 months.
Outflows might increase in the coming years
Despite tighter capital control measures adopted by Chinese authorities, Chinese investors might continue to invest overseas due to the appreciating dollar and global uncertainty. According to the latest results of an FT Confidential Research survey, 56.8% of Chinese outbound investors think that they will allocate more of their liquid wealth overseas in the coming two years.
Impact on funds
China-focused funds like the Clough China Fund – Class A (CHNAX), the Fidelity China Region Fund – Class C (FHKCX), the Matthews China Fund – Investor Class (MCHFX), the iShares MSCI China ETF (MCHI), and the SPDR S&P China ETF (GXC) aren’t impacted by the fall in foreign reserves.
However, revenues of multinational companies such as Taiwan Semiconductor (TSM), Lenovo Group (LNVGY), Baidu (BIDU), NetEase (NTES), and China Mobile (CHL) might take a hit due to currency fluctuation and the stronger yuan.