(Bloomberg) — China’s push to internationalize the yuan has entered a “steady, slow, but nonstop” phase that is likely to support further gains in the currency, according to JPMorgan Asset Management.
The yuan may appreciate at least 10% over the long run in real effective exchange-rate terms, Julio Callegari, chief investment officer for Asia fixed income, said in an interview this week. That measure tracks a currency’s strength against a trade-weighted basket of peers while adjusting for inflation.
“We buy, and we like it,” he said in Singapore. The appeal lies in the currency’s steady performance and the prospect that those gains can continue, he added.
The offshore yuan has climbed almost 5% against the dollar this year to its strongest level since 2022, supported by resilient exports that generate foreign-currency inflows and Beijing’s push to expand the renminbi’s global use. The gains have come despite subdued inflation and a weak economy pushing Chinese interest rates lower, widening the gap with US 10-year yields to a record.
Callegari noted that while Chinese offshore bond yields of 2%-2.5% may look unattractive to some global investors next to other rates markets, steady yuan appreciation can boost total returns above dollar bonds while offering diversification and a better risk-adjusted profile.
The firm favors yuan-denominated credit for its yield pickup along with currency appreciation. In Chinese government bonds, the fund likes “only a bit” of 30-year debt, Callegari said.
In July, Callegari said the firm had trimmed its long yuan positions against the dollar, shifting its focus to higher yielding currencies. At the time, he also said he expected the yuan to climb as high as 6.5 per dollar by year-end if the greenback retreated and China’s trade and current account stayed supportive.
The yuan was little changed at around 6.66 on Friday. Yields on China’s sovereign 10-year to 30-year bonds range from 1.61% to slightly over 2%.
Callegari said Beijing’s yuan internationalization push is likely to only deepen, citing efforts to boost yuan liquidity, add instruments such as five-year futures and encourage more 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.”
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