Quantum’s Yeung Sees Further Unconventional QE for China

By Emily Lai

Shocks came last week when the Peoples’ Bank of China (PBoC) intervened in the Chinese currency by cutting the daily reference rate a record of 1.9% on Tuesday and continued to set it at a lower value until Thursday. Quantum China Asset Management, with a focus on Greater China with an AUM of US$ 300m, interprets it as the first move of China’s quantitative easing, and would expect more to come.

As much as the policy itself comes as a surprise, Anthony Yeung, Managing Partner & CEO at Quantum China, also recognizes the reactions of the US government as different from before. “In the past, the US always criticized that China was manipulating the currency,” he says. “The reaction this time is different, because the US also senses the danger of the Chinese economy.”

After the 2008 financial crisis, China has taken up the role to lead the world economy despite facing deflationary pressure from the US, now that the US has pretty much settled down; Yeung believes it is China’s turn to launch quantitative easing to save the economy. “However, as with past experience, the Chinese government cannot explicitly announce they are doing QE, because the market overreacts easily and asset bubbles might arise again,” he says.

He believes the currency devaluation is just the first step of the QE plan, with further conventional and unconventional methods to follow.

1/ Further reduction of interest rate and required reserve ratio

2/ Structural reform of local government’s debts

3/ Issuance of a new set of RMB 100 notes. The new set will be issued this year with enhanced anti-counterfeit features. Yeung sees it as increasing M1 money supply, as the PBoC did not mention about old notes being replaced. He also foresees that RMB 500 notes will be out in a year’s time for easier administration to accommodate the depreciation of the currency

For now, Yeung does not recommend buying in RMB-based assets as he sees further depreciation to come, but recommends those already holding it to keep their positions as the impact of the policy will only be clear after 2-3 months, and he forecasts that the market would then interpret it as a positive move for the economy. BM