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Goldman Sachs Likes High-Quality China Debt Amid Outflow Concern

  • Firm says biggest concern is a weaker yuan sparking outflows
  • While hawkish Fed a risk, says June rate hike odds below 50%
This picture taken on July 6, 2012 shows a Chinese paramilitary guard watching over giant gushes of water being released from the Xiaolangdi dam to clear up the sediment-laden Yellow river and to prevent localized flooding, in Jiyuan, central China's Henan province. China is hit by big downpours every summer often causing fatalities as seen in 2010, which saw the nation's worst flooding in a decade leaving more than 4,300 people dead or missing. CHINA OUT AFP PHOTO (Photo credit should read STR/AFP/GettyImages)
Photographer: STR/AFP/Getty Images

Higher-quality investment-grade Chinese bonds are a better investment than riskier debt amid concerns that a weaker renminbi will lead to rising capital outflows from the nation, according to Goldman Sachs Group Inc.  

Chinese data suggest capital outflow eased to $15 billion in April, an “encouraging” slowdown, analysts Kenneth Ho, Yang Yang and Charles Himmelberg at the bank wrote in a May 20 report. Still, the leakage could pick up again if the recent strength in the U.S. currency persists, they said.