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Foreign Funds Boost China Government Bond Holdings by Record

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Currency Exchange Bureaus As China Roils Markets For Second Day As Yuan Tumbles With Stocks
  • Foreign Funds Boost China Government Bond Holdings by Record

Overseas investors increased their holdings of Chinese sovereign bonds by a record in September before the yuan entered the IMF’s reserves basket.

Foreign institutions bought a net 41 billion yuan ($6.1 billion) of government securities to boost their holdings to 385.97 billion yuan, according to data from China Central Depository & Clearing Co. That’s more than three times the average monthly increase this year, and extends an unprecedented buying streak to 11 months.

The latest figures come after the People’s Bank of China said on its official microblog last month that global central banks and supranational organizations have added to their onshore yuan asset allocations. The Chinese currency entered the International Monetary Fund’s Special Drawing Rights on Oct. 1 in the first revision since 1999, a move that may prompt monetary authorities around the world to buy more Chinese assets.

“This shows that joining the SDR basket helps to bring more inflows,” said Li Liuyang, Shanghai-based market analyst at Bank of Tokyo-Mitsubishi UFJ (China) Ltd. “As more institutions complete the registration processes, there should be more inflows. After all, Chinese government bonds, compared with the other major economies’, are very attractive.”

The increased buying comes after China eased access for foreign investment in the nation’s debt. Policy makers have since February allowed all types of medium- to long-term investors to access the interbank bond market, and said that approved fund managers under the Qualified Foreign Institutional Investors program no longer have to apply for quotas to invest onshore.

Bond Rally

Global funds held 764 billion yuan of onshore bonds — government and corporate — at the end of June, latest available data from the PBOC show. That’s 1.4 percent of a 53.8 trillion yuan market, according to Bloomberg calculations based on official data. The central bank is set to release third-quarter foreign holdings figures in a few weeks.

A gauge of China sovereign bonds has rallied in 10 of the past 11 quarters on speculation the monetary authority will keep interest rates low to combat the slowest economic growth in more than two decades. The benchmark 10-year sovereign yield is now at 2.67 percent Monday, compared with 1.76 percent for similar-maturity U.S. Treasuries.

The yield on notes due August 2026 fell three basis points to 2.69 percent, after rising by the same magnitude on Monday, according to National Interbank Funding Center prices.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Forex

IMTOs Drive 38.86% Rise in Foreign Exchange Inflows to $1.07bn in First Quarter of 2024

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Naira Exchange Rates - Investors King

Foreign exchange inflows into Nigeria surged by 38.86% to $1.07 billion in the first quarter of 2024, according to the Central Bank of Nigeria’s (CBN) latest quarterly statistical bulletin.

This increase is attributed to the enhanced contributions from International Money Transfer Operators (IMTOs).

In January, IMTOs facilitated inflows amounting to $383.04 million. This figure dipped slightly to $322.83 million in February but rebounded to $363.70 million by March, this upward trend represents a 10.74% growth from the previous quarter of 2023.

The surge in forex inflows comes at a critical time for Nigeria, as the country continues to grapple with economic challenges, including inflation and a fluctuating naira.

The increased foreign exchange reserves are expected to provide much-needed stability to the naira and bolster Nigeria’s economic standing in the global arena.

CBN Governor Dr. Olayemi Cardoso has underscored the importance of remittances from the diaspora, which constitute approximately 6% of Nigeria’s GDP.

The recent approval of licenses for 14 new IMTOs is seen as a strategic move to enhance competition and lower transaction costs, thereby encouraging more remittances to flow through formal channels.

“We recognize the significant role that IMTOs play in our foreign exchange ecosystem,” Dr. Cardoso remarked during a recent press briefing.

“The inflows we’ve seen are a testament to the effectiveness of our strategy to engage with these operators and ensure that more remittances are channeled through official avenues.”

The CBN has also introduced measures to facilitate IMTOs’ access to naira liquidity at the official window, aiming to streamline the settlement of diaspora remittances.

This initiative is part of the broader effort to stabilize the forex market and address the persistent challenges of foreign currency availability.

The bulletin also revealed that the inflow from IMTOs has contributed significantly to Nigeria’s overall forex reserves, which are crucial for economic stability and growth.

Analysts suggest that the increased remittances will support the naira, providing relief amidst the country’s ongoing economic adjustments.

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Forex

CBN Resumes Forex Sales as Naira Hits N1,570/$ at Parallel Market

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US Dollar - Investorsking.com

The Central Bank of Nigeria (CBN) has resumed the sale of foreign exchange to eligible Bureau De Change (BDC) operators.

The decision was after Naira dipped to N1,570 per dollar in the parallel market,

CBN announced that it would sell dollars to BDCs at a rate of N1,450 per dollar. This decision aims to address distortions in the retail end of the forex market and support the demand for invisible transactions.

Following the CBN’s intervention, the dollar, which recently traded as low as 1,640 per dollar, has shown signs of stabilization.

The apex bank’s action is expected to inject liquidity and restore confidence among market participants.

BDC operators have welcomed the move. Mohammed Magaji, an operator in Abuja, noted that the dollar was selling at 1,630 per dollar.

He emphasized the market’s volatile nature but expressed optimism about the CBN’s intervention.

Aminu Gwadebe, President of the Association of Bureau de Change Operators of Nigeria, attributed the naira’s decline to acute shortages, speculative activities, and increased demand due to recent duty waivers.

He praised the CBN’s action as a necessary step to alleviate market pressures.

The CBN’s efforts include selling $20,000 to each eligible BDC, with a directive to limit profit margins to 1.5% above the purchase rate.

This strategy aims to ensure that end-users receive fair rates and to curb inflationary pressures.

The CBN’s ongoing reforms seek to achieve a market-determined exchange rate for the naira. As the naira continues to navigate turbulent waters, stakeholders remain hopeful that these measures will lead to a more stable and liquid forex market.

Market analysts suggest that sustained interventions and increased access to foreign exchange could help reverse the naira’s downward trend.

The CBN’s actions demonstrate a commitment to tackling the challenges facing the foreign exchange market and supporting Nigeria’s economic stability.

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Finance

Nigeria’s FX Inflows Leap 57% as CBN Steers Economic Confidence

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U.S dollar - Investors King

Nigeria’s foreign exchange (FX) inflows have surged by 57% over the past year, signaling newfound stability for the Naira.

Analysts attribute this growth to the Central Bank of Nigeria’s (CBN) consistent policies, which have bolstered investor confidence and enhanced market stability in Africa’s most populous nation.

Data from the CBN reveals that FX inflows rose to $8.86 billion in February 2024, compared to $5.66 billion in February 2023.

This increase is a testament to the effectiveness of the CBN’s strategic measures. Similarly, foreign exchange turnover skyrocketed 180% year-on-year to $240.64 million in February 2024.

“The upsurge in FX inflows reflects the positive impacts of increased interest rates and the relative stability of the exchange rate,” said Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting.

He noted that high interest rates in Nigeria are attracting investors seeking better returns compared to developed countries.

The CBN has actively engaged with foreign investors, addressing concerns and providing insights into monetary policy actions.

Olayemi Cardoso, the CBN governor, emphasized that investor confidence has been restored, partly due to the bank’s clearance of a $7 billion foreign exchange backlog.

New investments into Nigeria also increased significantly, reaching $1.24 billion in February 2024, compared to $0.33 billion in January 2024. This uptick is indicative of a more stable and attractive investment climate.

Analysts point out that improved oil production and higher global oil prices have significantly boosted FX earnings.

Also, government policies aimed at attracting foreign investment, along with strategic management of the exchange rate, have played pivotal roles in this economic revival.

The CBN’s efforts to diversify the economy and boost non-oil exports are starting to yield results.

Increased diaspora remittances, facilitated by better official channels and incentives, have further contributed to the rise in FX inflows.

While challenges remain, the positive trend in FX inflows suggests a more robust and stable economy, encouraging further investment.

Consistent and transparent economic policies are expected to enhance investor trust, stabilizing the Naira and fostering a more favorable exchange rate environment.

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