January 2016

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We've flagged this last year as one of the biggest risks for the markets (see here for an explanation), and it's back again:

Since the dawn of the new year, however, investors have become much more concerned that a larger devaluation may be in the works, either through the choice of the Chinese authorities, or because the outflow of private capital is getting out of hand. Some bears in the currency markets believe that China could soon be suffering from a genuine exchange rate crisis, in which its enormous foreign exchange reserves could be quickly drained.

The Chinese devaluation threat — again | Gavyn Davies

What it does suggest, however, is that private sector capital outflows have been very large recently. Market sources reckon that private capital outflows may be running at $10bn a day, slightly more than occurred during the crisis last August. Official foreign exchange reserves have declined by $213bn, from $3,651bn last July to $3,438bn at the end of November, and will probably have dropped further when the December figures appear on Thursday.

The Chinese devaluation threat — again | Gavyn Davies