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The RMB trade settlement effect

Weekly investor research

07 April 2015

RMB trade settlement is growing at a ferocious pace. As China moves towards a target of 50% RMB settlement of all its trade, this effect alone will turn China into a ‘depletor’ of reserves as early as 2017, regardless of what happens to its trade balance. This should concern the US, because it will begin to lose one of its largest clients for US treasuries. As US payrolls moved into line with other recent weak data, we review how the strong USD over the past three years impacted Emerging Markets (EM). The effect on investor sentiment was much greater than the effect on EM, which probably benefitted from weaker currencies. It seems that the US has been more adversely affected by the strong USD than EM, as indeed one would expect.

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