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May 29, 2017

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Citicorp talks up USD, renminbi-based goods

TAIPEI, Taiwan -- Predicting the U.S. dollar (USD) and the Chinese renminbi to accelerate appreciation in the latter half of this year, Citicorp suggested investors to increase holdings of USD and Chinese Yuan (renminbi) as well as Taiwan dollar (NT)-based products.

Citicorp Securities Investment Consulting Inc. Chairman Spencer Wang (王進彰) recently said that the performance of USD and renminbi is relatively stable on global foreign exchange (forex) market, in the meantime he reminded investors to keep a wary eye on euros.

Although higher production efficiency is needed to help put the U.S. economy on an improved growth path, economic recovery is gaining traction in the world's largest economy, Wang said. The loads of railway freights and the employment rate in the U.S. has returned to nearly the highest level since the pre-global financial crisis in 2008, a sign of recovery in the U.S. economy.

Moreover, factors including the gradual exit of the U.S. Federal Reserve's (Fed) bond-buying program and the mounting security crisis in Iraq that triggers a safety bid for the U.S. currency are expected to push up the U.S. dollar in the second half of this year.

Facing increasing valuation and other indicators that might signal a stock market correction, investors could choose USD-based non-investment grade bonds to fend off the stock market risk while pursing long-term high-yield interest income.

In tandem with China's anemic economic recovery, the debt-paying ability of Chinese businesses and systemic risk and financial stability have sparked distrust and set tongues wagging among the public.

According to Wang, Chinese authorities are expected to wrestle with the looming non-performing loans issues in a longer and progressive manner, rather than go cold turkey just as Washington did in 2008, since China 's economy hasn't had sufficient strength to withstand such a marked impact.

At any rate, Wang thinks that a low-interest rate and low-inflation in China will create investment opportunities in renminbi-based fixed income products, adding that interested investors can consider allocating part of their portfolio to renminbi-based non-investment grade bonds.

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