The recent decline in the yuan is opening the door for Chinese policy makers to loosen controls on the country’s capital markets, according to HSBC Global Asset Management.
The yuan has depreciated 0.9 percent this year after rising 31 percent in the seven years through 2011. Lowered expectations for currency appreciation will drive away speculators, creating a window to carry out changes such as reducing the government’s control of interest rates, said Geoffrey Lunt, a senior product specialist for fixed income at HSBC Global Asset Management.
“The stars have aligned,” Lunt said in an interview at Bloomberg’s headquarters in New York. “All the steps they’ve taken are going in the same direction.”
China has sped up the reforms in the capital markets this year, giving banks more freedom to decide on deposit and lending rates, widening the yuan’s trading band and more than doubling the amount foreigners can invest in domestic financial markets.
Further opening up of the market will create more investment opportunities, said Lunt, whose company started a fund this month to invest in yuan-denominated fixed-income securities.
The yuan will continue to rise between 2 and 4 percent against the dollar annually over the coming years, as growth in China outpaces the U.S., according to Lunt.