China: FX reserves fell by USD14.2bn in May - Nomura

Analysts at Nomura note that China’s headline FX reserves fell by USD14.2bn in May to USD3110.6bn in line with their expectations (Consensus: USD3106.5bn; Nomura: USD3109.9bn).

Key Quotes

“After adjusting for FX valuation and coupon payment effects, FX reserves actually rose by USD9.0bn (largest adjusted increase since December 2017) and represent a further improvement from the broadly flat April read (+USD2.1bn m-o-m).”

“Overall, we believe the release reflects a continuation of the improved net flow backdrop that has been in place since August 2017, especially considering the heightened financial market volatility in May stemming from Italian political uncertainty, TRY depreciation risk, and changes in the US stance in its trade negotiations with China.”

“Encouragingly, foreign portfolio flows into China remain very resilient, and we believe this is structural in nature. May foreign bond holdings data from the China Central Depository & Clearing Co showed a substantial USD8.8bn of flows into Chinese interbank bonds after the USD10.6bn inflow in April.”