China’s currency takes on the sheen of safe haven asset against volatility, ending third quarter with its biggest gains in 12 years

The Chinese yuan is drawing attention as a haven from volatility after its best quarter in 12 years.

The onshore renminbi gained 3.8 per cent in the three-month period ending September 30, the most since early 2008, while its offshore counterpart advanced more than 4 per cent.

That was more than Group-of-10 currencies including traditional refuges like the Swiss franc and Japanese yen, a remarkable turnaround considering the yuan’s devaluation just five years ago triggered a broad market rout.

China’s success in fighting the coronavirus and its economic fallout has attracted both praise and investment, and fuelled speculation that the yuan could become a new sanctuary for the risk-averse. Of course, the nation still tightly controls its exchange rate versus a basket of currencies, and determines how much money is able to cross its borders – taboo for many international asset managers – but those measures have also stabilised the currency even as price swings pick up elsewhere.

The offshore yuan has been “less volatile throughout this time period and the liquidity in the currency remains quite good relative to many currencies,” Brad Bechtel, global head of foreign exchange at Jefferies, said in a Bloomberg TOPLive blog on Wednesday. “China has done a lot of work on improving their capital markets and access to those markets and that is likely to continue which will improve liquidity and attract capital flows.”

Investors sent the offshore yuan to its highest since May 2019 on Wednesday, with the currency rallying as much as 0.8 per cent, the most in almost three months. Overseas holdings of Chinese sovereign debt have meanwhile risen 22 per cent this year through August.