"650 Billion USD Expected to Exit Chinese Stock and Bond Markets Next Year"

Due to supply chain conflicts with the United States and other factors, it is forecasted that there could be an outflow of funds amounting to $65 billion (approximately 84.18 trillion KRW) from the Chinese stock and bond markets next year.

On the 13th, Hong Kong's South China Morning Post (SCMP) cited a recent report from the Institute of International Finance (IIF), stating that increased geopolitical risks and changes in investor sentiment will likely dampen foreign interest in the Chinese market next year.

According to data from the IIF report, the Chinese bond market has experienced continuous capital outflows by foreign investors since early this year. The IIF explained, "We expect net outflows of foreign investment capital from China to continue next year," adding, "Following significant outflows this year, net outflows of around $45 billion are expected next year." It further elaborated, "Despite the U.S. Federal Reserve (Fed) halting interest rate hikes, the People's Bank of China's dovish (monetary easing) stance is likely to sustain a high dollar-yuan interest rate spread."

The People's Bank of China, the country's central bank, has maintained low interest rates this year to supply liquidity to the sluggish economy. The loan prime rate (LPR), which effectively serves as the benchmark interest rate, stands at 3.45% per annum for a one-year term and 4.20% per annum for a five-year term. Since the Fed began raising its benchmark rate in March last year, the interest rate gap between the two countries has widened, causing the yuan's value to decline. Compared to the beginning of this year, the yuan has depreciated by 6.2%, with the dollar-yuan exchange rate exceeding 7.1 yuan per dollar.

According to the IIF report, foreign investor capital inflows into emerging markets outside China have shown signs of recovery, with an estimated $43.4 billion flowing into stock markets last month as a result.

The IIF emphasized, "Chinese assets face major downside risks due to deteriorating relations with the West," adding, "Concerns over de-risking, reshoring, and export controls will continue to weigh on capital flows next year." It also noted, "As central banks in developed countries ease their hawkish stance, capital inflows into emerging markets outside China may continue," but "in China's case, increased geopolitical risks and changes in investor sentiment will hinder capital inflows."

However, the report forecasted, "Supported by expectations of stability in China's housing market and a recovery in export demand, China's real economic growth rate next year is expected to slightly exceed the existing consensus, reaching around 5%."

Meanwhile, according to China's Ministry of Commerce, foreign direct investment (FDI) into China from January to October amounted to 987.01 billion yuan (approximately 179 trillion KRW), a sharp decline of 9.4% compared to the same period last year. In the third quarter, outflows of FDI from China exceeded inflows by $11.8 billion.

Negative outlooks on China's economic prospects are gaining traction amid local government debt, delays in state-owned enterprise innovation, and a real estate slump. On the 5th, Moody's maintained China's sovereign credit rating at A1 but changed the outlook from 'stable' to 'negative.' Considering Moody's past practice of downgrading credit ratings after a period of negative outlooks, this effectively signals a forthcoming downgrade. Moody's previously downgraded China's sovereign credit rating from Aa3 to A1 in 2016, 27 years after the 1989 Tiananmen Square incident.

This content was produced with the assistance of AI translation services.