trending Market Intelligence /marketintelligence/en/news-insights/trending/qnadpnjbvgxap4drin6q6a2 content esgSubNav
In This List

Rising EM capital outflows may heighten financial vulnerability: ex-PBOC chief

Blog

Using ESG Analysis to Support a Sustainable Future

Podcast

Street Talk Episode 87

Blog

A New Dawn for European Bank M&A Top 5 Trends

Blog

Insight Weekly: US banks' loan growth; record share buybacks; utility M&A outlook


Rising EM capital outflows may heighten financial vulnerability: ex-PBOC chief

Former People's Bank of China Governor Zhou Xiaochuan warned that capital outflows from debt-laden emerging economies could spark financial volatility, China Daily reported.

"The interactive impact of small-probability events could lead to significant results," Zhou said in a speech over the weekend of May 19-20, urging central bank officials to "keep a close eye on what will happen next" if 10-year U.S. Treasury yields continue to climb.

Ten-year U.S. Treasury yields have gained 81 basis points in the past year to 3.06% as of 2:34 a.m. ET on May 22. The climbing yields, which breached 3.1% in the week of May 14, have triggered market turbulence in emerging economies such as Argentina and Turkey and prompted central banks from Buenos Aires to Jakarta to hike rates in response to rising capital outflows.

The ICE U.S. Dollar Index, which measures the value of the dollar relative to a basket of other currencies, has risen about 3.89% in the past month. The strengthening dollar pushed the onshore Chinese yuan's spot exchange to its lowest level in nearly four months May 21.

The yuan's depreciation could "encourage capital outflows, leading to a rapid depletion of foreign exchange reserves similar to the situation between mid-2014 and late 2016," Iris Pang, an economist at Greater China at ING, said in a recent note. "The central bank will try to avoid a repeat of history, especially when the economy is facing additional risks from trade tensions."

China's foreign exchange reserves stood at $3.125 trillion at the end of April, down $36.6 billion from January to April after 12 months of growth since February 2017.

In April, the China-U.S. interest rate gap was about 90 basis points, still a "comfortable range" for balanced cross-border capital flows, Zhou's successor and current central bank Governor Yi Gang was quoted by China Daily as saying. The rate differential has since fallen to 60 basis points.