A surge in Chinese equities is stoking bullish sentiment toward the yuan, raising prospects of a virtuous cycle where gains in one asset class reinforce confidence in the other.
The iShares MSCI China ETF, a proxy for foreigners’ appetite for Chinese shares, saw $395 million of net inflows in August, the most since May, according to Bloomberg-compiled data. Strategists at BNY and others have also turned more constructive on the yuan, citing equity strength that could shore up the currency in the near-term. Demand for the yuan would rise if overseas investors convert foreign currencies into renminbi to purchase mainland stocks.