What COFER Data Imply for Chinese Reserves? - Nomura
Research Team at Nomura, suggests that the inclusion of Chinese reserves
data into COFER makes it difficult to follow what FX reserve managers
are doing, while increasing expectations on the allocation of the
Chinese reserves portfolio.
Key Quotes
“If
China underweights EUR and overweights GBP there may be expectations
about EUR/GBP buying in the medium term. However, if this is the case,
China’s current allocation may be viewed as adequate (by itself).
In
addition, we cannot rule out that there was a historically high pace of
reserve rebalancing from EUR assets to GBP assets from Q2 2015 to Q4
2015 by reserve managers, based on flow analysis. Consequently, it is
unclear whether China has underweighted EUR.
Although one could
conclude that the Chinese reserve portfolio has underweighted JPY by
about 3% based on Q3 2015 data, the updated JPY share shows no signs of
underweighting.
We think drawing strong conclusions about
Chinese reserve flows from COFER is hazardous. BoP data still show
relatively large foreign selling of euro area debt securities from non-
US and non-Japanese investors and foreign reserve flows may not be
clearly EUR positive yet. A large part of foreign flows into Japanese
fixed income products are also likely on an FX-hedged basis too. The
mid-term flow picture remains EUR and JPY negative against USD.”
(Market News Provided by FXstreet)
