Halister News

(Bloomberg) -- Chinese policymakers has been urging local govt financing vehicles and state-owned enterprises to issue USD bonds overseas in past 2 months due to dollar strength, according to China International Fund Management, a joint venture between JPMorgan Asset Management and Shanghai Trust.

• As Chinese investors are typically the main buyers of China- issued USD-denominated bonds abroad, the proceeds would return to China and help offset capital outflows, William Chung, senior fund manager at CIFM Asset Management Hong Kong said in an interview today
• Absence of defaults in LGFV bonds so far suggests implicit guarantee by govt
  • Freeze on QDII and RMB-QDII outbound investment quotas may remain
  • Policymakers likely to keep capital controls for a while
• Yuan may depreciate gradually before domestic consumption replaces exports as main driver of GDP growth; weakening yuan may curb appetite for Dim Sum bonds
• PBOC unlikely to ease aggressively through rate cuts as this may fuel an “irrational” property market
  • PBOC may prefer using medium-term lending facility and non-conventional policy tools to guide liquidity to certain sectors and given capital outflows are moderate; may cut RRR by 50bps
• Sovereign bond yield curve to stay flat, with short-end buoyed by credit concerns and absence of further easing
  • Long-end lacks momentum to rise because low inflation argues for little premium
• NOTE: PBOC injected 259b yuan into 13 banks via MLF operations: statement on July 13