A long-held view among many investors that China’s currency and markets would one day sit at the center of world finance to match the second biggest economy in the world looks bruised at best after a torrid 2021 and February’s geopolitical quake.
And for growing numbers of money managers, Russia’s invasion of Ukraine and the dramatic Western financial sanctions that followed has indeed changed the calculus completely. And all this on top of China’s “common prosperity” drive in 2021, which saw serial crackdowns on the financing activities and profit motives of its digital, commodity trading and online education sectors.
What’s more, the evaporation of the substantial yield premia on Chinese bonds over U.S. Treasuries - due largely to the hawkish Federal Reserve reaction to the latest energy price shock - has also seen investors flee once-prized fixed income market there too. China may not be “uninvestable,” it said, but from now on that would be only on a tactical or thematic basis.
But at the heart of all the investor squeamishness is a growing lack confidence in the political parameters around investing in China at large, damaging the whole premise of internationalization of the yuan as a future store of value or reserve currency.