January 24, 2019 / 8:39 AM / a month ago

Yuan bulls re-emerge amid growing trade talk hopes: Reuters poll

(Reuters) - Investors turned bullish on China’s yuan for the first time in nearly eight months, a Reuters Poll showed, after Sino-U.S. trade tensions took a turn for the worse last year and consumed global markets for much of 2018.

FILE PHOTO: Chinese 100 yuan banknotes are seen in a counting machine while a clerk counts them at a branch of a commercial bank in Beijing, China, in this March 30, 2016 file picture. REUTERS/Kim Kyung-Hoon/File Photo

Long positions on the yuan CNY=CFXS rose to their highest since mid-May, the poll of 12 respondents showed, with investors regaining some of their lost appetite for a currency that shed nearly 6 percent against the dollar in 2018.

As another Reuters poll showed two weeks ago, the new year brought fresh hopes for emerging Asian currencies, with positive developments on U.S.-China trade talks prompting investors to envision a time where trade-related market uncertainty will begin to fade.

A more dovish-sounding U.S. Federal Reserve has also prompted global investors to plow into riskier assets.

But with recent global economic data pointing to a rough year ahead for the world economy, which is already reeling from the impact of the world’s top two economies sparring for much of 2018 and other major events, like Brexit, many worry about how long upbeat sentiment in the region will last.

Also, U.S. President Donald Trump said on Wednesday that the United States was doing well in trade talks with China, but the two sides are still far apart on key structural elements critical for a deal, according to sources familiar with the talks.

Data released on Monday showed China’s economy cooled in the fourth quarter under pressure from faltering domestic demand and bruising U.S. tariffs, dragging 2018 growth to the lowest level in nearly three decades and pressuring Beijing to roll out more stimulus to avert a sharper slowdown.

Measures announced and expectations of further stimulus have kept investors optimistic that the economy, which has generated nearly a third of global growth in recent years, may find its footing again.

“Incoming stimulus could see Chinese growth beginning to base around Q1, which explains more bullish Asian positioning even as trade continues to underperform in most countries,” said Wei Liang Chang, a FX strategist with Mizuho.

Short bets on India's rupee INR=IN rose to their highest since early December as the unit's recent recovery was dampened by oil's resurgence and uncertainty around looming national elections.

A Reuters poll in early January predicted that the rupee will come under pressure again this year, but its path will largely be shaped by the results of general elections in May, oil price moves and the central bank’s policy.

Bets on the rupiah IDR=, which turned bullish for the first time two weeks ago in nearly one year, remained largely in-check.

Bank Indonesia, which was one of 2018’s most aggressive central banks, held its key interest rate last week.

Meanwhile, bullish bets on the Thai baht THB=TH were almost unchanged, at their highest since March. The date for the country's long-awaited general election is now set for March 24.

The Asian currency positioning poll is focused on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and the Thai baht.

The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long U.S. dollars.

The figures include positions held through non-deliverable forwards (NDFs).

Reporting by Nikhil Kurian Nainan, additional reporting by Simran Lakhotia and Rashmi Ashok in Bengaluru; Editing by Subhranshu Sahu

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