JPMorgan Asset Management predicts the yuan will appreciate at least 10% in real effective terms over the long run, driven by China’s steady internationalization efforts. Julio Callegari, chief investment officer for Asia fixed income, described the currency’s progress as “steady, slow, but nonstop.” The offshore yuan has already climbed nearly 5% against the dollar this year to its strongest level since 2022, supported by resilient exports and Beijing’s push to expand the renminbi’s global use. Despite subdued inflation and lower Chinese interest rates widening the yield gap with US bonds, Callegari argues that steady yuan appreciation can boost total returns above dollar-denominated assets while offering diversification.
The firm favors yuan-denominated credit for its yield pickup and currency gains, holding only a modest position in 30-year Chinese government bonds. In July, JPMorgan trimmed long yuan positions against the dollar, shifting focus to higher-yielding currencies, but still expected the yuan to reach 6.5 per dollar if the greenback retreated and trade conditions remained supportive. The yuan was little changed at around 6.66 on Friday, with sovereign bond yields ranging from 1.61% to slightly over 2%.
Callegari emphasized that Beijing’s yuan internationalization push is likely to deepen, citing efforts to boost liquidity, add instruments like five-year futures, and encourage issuance from countries such as Kazakhstan. Authorities are also widening channels for onshore funds to flow into the offshore market. “There’s no way back in our view,” he said. “They will not say, ‘oh, now the market is difficult. Let’s stop.’”.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing