Asia: November FX reserves not so bad after all - BNPP

Mirza Baig, Head of FX & IR Asia Strategy at BNP Paribas, notes that the Asian central banks have reported their FX reserves for November and most have updated their FX forward books for October.

Key Quotes

“While China’s FX reserves declined slightly more than expected in November, most other countries reported much better figures.”

“Given that net foreign selling of local market assets was substantial, the smaller- than-expected decline in FX reserves suggests foreign investors are in no hurry to repatriate cash. Unlike previous episodes of market mayhem, the bid for USDs appears remarkably subdued.”

“We track reserve changes (adjusted for valuation effects) closely as they are a key indicator of balance of payments dynamics and central banks’ FX policies.” 

“The standout theme is that reserve depletion was smaller than expected in most cases. Given the pressure on Asian currencies and the large redemptions reported by EM funds, we had expected a substantial drop in FX reserves.” 

“China: China reported a nominal decrease in reserves of USD 69bn in September, slightly more than the market expectation of a USD 60bn fall. After valuation adjustments, we estimate a decline of USD 25bn. While this confirms that downward pressure on the RMB increased last month, we believe the monthly reported reserves probably understate the authorities’ true market intervention. In general, due to the lack of transparency on ‘proxy’ intervention and USDCNH FX swap transactions, we do not think that the monthly reserve data are a reliable or relevant indicator anymore.”