Unwinding of CNY carry trade may have a profound impact...Huat Big Big hah
Markets are worried about the Chinese yuan sparking a new wave of turmoil
Huileng TanThu, 8 August 2024 at 2:07 pm SGT4-min read
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- Markets are stabilizing after Monday's selloff, but concerns are shifting to the Chinese yuan.
- Some analysts are warning of potential yuan carry trade unwind.
- Japan's interest-rate hike triggered a massive selloff on Monday due to the yen carry trade unwinding.
Monday's massive market selloff — the worst on the Nikkei since Black Monday 1987 — was in part triggered by the unwinding of Japanese yen carry trades.
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"The next carry trade unwind could be the yuan," Khoon Goh, the head of Asia Research at ANZ, told CNBC on Wednesday, pointing out that the offshore yuan already jumped against the dollar earlier on Monday as a kneejerk reaction to the yen carry trade unravel.
The carry trade strategy involves borrowing Japan's longstanding ultra-low interest rate environment to fund higher-yielding assets elsewhere. The Bank of Japan's rate hike last week, however, jolted the market, forcing investors who borrowed to fund their carry trades to liquidate their positions, setting off the global market rout.
Now, analysts and investors are jittery about the same happening in the Chinese yuan.
China is in a low interest-rate environment as authorities are trying to boost the country's flagging economy.