Foreign investors the U.S. stock market investment conditions, we can approximate the time series data, infer changes in foreign exchange reserves portfolio. of course, must be noted that the U.S. Treasury Department announced the U.S. portfolio investment in China, both The central bank's investment, including Chinese financial institutions, investment companies and residents. but most of China foreign exchange assets concentrated in the hands of the central bank, according to the U.S. Treasury Department data to infer the central bank's investment behavior, the error is acceptable.
portfolio before the crisis: the gradual acceleration of the diversification
Figure 1 reveals the 2002-2008 period, China invested in U.S. securities portfolio changes, which you can get four conclusions: First, if the scale of investment in descending order, the most important for China, the U.S. Securities and varieties were government bonds, agency bonds, corporate bonds and stocks; Secondly, since 2006, the Chinese purchase of U.S. agency debt size increased significantly, as of 2008 June 30 more than government bonds as the most important investment products; again, since 2007, China's purchases of U.S. stocks scale increased significantly, by 2008 more than the size of corporate bonds; Fourth, from the point of view the term structure Chinese investments in U.S. securities-based long-term securities.
Figure 1 China's investment portfolio of U.S. securities
Figure 2 shows since 2000, the size of China's holdings of U.S. treasuries monthly data. Overall, China's foreign exchange reserves total U.S. debt ratio is declining .2007 before the fourth quarter of 2008, the United States Treasury account for the ratio of foreign exchange reserves showed a downward trend accelerated up to 28%. This shows that in the sub-prime crisis into a global financial crisis, especially in 2007 and 2008, the Chinese government's asset allocation in foreign exchange reserves has already begun the diversification of more positive.
Figure 2 China's investment position of U.S. treasury bonds
table 1 lists the most important creditors of the United States between 2001 and 2008 offshore financial center by the net purchase amount of U.S. Treasury bonds. not difficult to find, in these countries or regions, China is the only 8 consecutive annual net purchases of offshore financial centers by the U.S. national debt, the total 8-year period bonds purchased through offshore financial centers 259 billion U.S. dollars. And as the world's most important offshore financial centers, the UK has been helping financial institutions other countries, investors continued to purchase U.S. Treasury bonds. This is the traditional line on the market the impression that China's foreign exchange management will be through their own in London, Hong Kong and other offshore financial centers to carry out portfolio investment subsidiary.
Table 1 countries through offshore financial centers the amount of net purchases of U.S. Treasuries
Unit: $ 1,000,000,000
portfolio after the crisis: a wide range of reversal
shown in Figure 3, after the outbreak of the subprime crisis China's securities investment experience of the United States, some significant changes. specifically including:
First, the U.S. Treasury, China during the crisis, the purchase of long-term U.S. government bonds experienced significant volatility. From 9, 2008 April, China started large quantities of short-term bonds.
early in the crisis, China is also holdings of U.S. Treasury bonds .2007 July to November, China for 5 consecutive months of net sale of U.S. Treasury bonds. This shows that Although the United States at the outbreak of the crisis, the crisis impact limited in scope, the majority of market players that the crisis is only a partial and transient, not the crisis as an asset allocation of an important consideration.
However, starting from the end of 2007 China began to re net purchases of long-term U.S. Treasury bonds. be noted that since the end of 2007, Chinese purchases of U.S. Treasury bonds has experienced two peaks of scale, which is not exactly the same meaning. In late 2007, the first half of 2008 China experienced a foreign exchange reserve accumulation phase of acceleration. For example only in the first half of 2008, China's foreign exchange reserves has increased by 280.6 billion yuan. As foreign exchange reserves increased significantly in China in fact increase the purchase of various types of U.S. securities. shown in Figure 3, the period of significant holdings of Chinese at the same time the United States government bonds, agency debt and corporate bonds. However, in 2009, from January to May, China's foreign exchange reserves decreased year on year increments, so China is not significantly overweight, or even other types of securities holdings in the context of large-scale holdings of long-term U.S. Treasury bonds. Figure 3 shows, in 2009, 1-5 months, in various types of securities in China only increased the U.S. debt purchase. This fully shows that when the collapse of Lehman Brothers made the United States subprime mortgage crisis into a global financial crisis, the United States the value of risky assets hard hit. In the money into the U.S. bond market for hedging, investment institutions of China's sovereignty is no exception.
holdings of U.S. treasuries from China look at the term structure (Figure 4), in September 2008 before the debt is mainly long-term Main .2005 January to September 2008, China's holdings of short-term Treasury bonds accounted for the total size of the average rate of 4.6%. However, after the bankruptcy of Lehman Brothers, the U.S. spent a lot of financial funds for rescue and issuing a large number of bonds to finance budget deficits, resulting in decline in the future market value of U.S. Treasury bonds and increase the risk of depreciation of the dollar. In this context, China began to significantly increase the purchase of short-term U.S. government bonds. In the end of May 2009, accounting for short-term government bonds held the ratio of the U.S. national debt rose to 26.2%.
Figure 3 after the outbreak of the subprime crisis on China's long-term U.S. securities, all net purchase amount of the monthly
Figure 4 China's holdings of long-term U.S. Treasury bonds and short-term comparison
Secondly, in terms of U.S. agency debt, and 7 June 2008 was a watershed between the months (Figure 3). Prior to this, China has been actively buying agency debt. However, from July 2008 , the Chinese government has been in holdings of U.S. agency debt. China is changing the attitude of U.S. agency debt of nature and the second half of 2008 related to the crisis broke out two rooms, because Fannie Mae and Freddie Mac bonds issued by the U.S. agency debt accounted for 80%. With the outbreak of the two housing crisis, investors realize that China's sovereignty, agency debt level of risk far more than the previous judgments. While the U.S. government took over two rooms, but has no two rooms to the safety of bonds a clear commitment, so Chinese investors began to continued reduction in agency debt portfolio.
Thirdly, the Chinese purchase of U.S. corporate bonds and agency debt compared with similar conditions. In August 2008, the Chinese have been U.S. corporate bonds purchased. But in September 2008 to play in May 2009 the 10-month period, China had 5 months in the holdings of U.S. corporate bonds, the overall reduction of 10 months was 2.1 billion.
Fourth, the concern is that China's investment in U.S. stocks. Figure 1 shows, in the June 30, 2007 to June 30, 2008 between the China stock investment by the United States rose to 28.5 billion $ 99,500,000,000, an increase of 2.5 times. We believe that one very important reason, is the establishment of CIC Administration of Foreign Exchange of China is facing increased competitive pressure, which to some extent, changed the investment behavior of the latter. outside Authority began to increase its equity investment portfolio. This diversity in itself is commendable. But bad luck, with the September 2008 collapse of Lehman Brothers led the U.S. stock market index fell sharply, Chinese investors U.S. stocks suffered heavy losses on its investment is no doubt. In fact, since September 2008, the U.S. Treasury Department data show that Chinese investors on the U.S. equities trading behavior is not significant (Figure 3). This means that even U.S. stocks began warming, but due to the impact of prior losses, the Chinese stock market investors do not enter the United States to carry out bargain-hunting action.
Conclusion
before the outbreak of the subprime crisis, especially in September 2008 Lehman Brothers bankruptcy triggered a global financial crisis, the Chinese sovereign investment in U.S. stock market investors can be summarized as: both bonds and agency debt, mainly government bonds in the long-term government bonds; the Chinese government has begun the pace of diversification of the portfolio, including holdings of government bonds, holdings of bonds and stocks. This not only reflects the increase in the stock as the foreign exchange reserves, China's foreign exchange authorities began more by the preferences of foreign exchange liquidity of the assets transferred to the income and security, which also reflects the CIC China's foreign exchange reserve was created to introduce competition in the field of asset management, which to some extent (or incremental sense) change the investment style of the SAFE.
However, expansion of the subprime mortgage crisis deepens, the U.S. financial markets The diversification of China's foreign exchange reserves drop makes the behavior of investment suffered some setbacks, particularly in new stock investment may suffer more serious losses. the trend in the hedge effect, the Chinese began to re-emphasis on foreign currency assets invested in U.S. Treasury bonds . specific performance: the proportion of U.S. treasury bonds increased significantly, including the proportion of short-term government bonds sharply higher; China began to continue selling U.S. agency debt; China for U.S. corporate bonds and equities have become more cautious, basically neither overweight nor significantly reduction. Overall, the outbreak of the subprime crisis disrupted the Chinese foreign currency reserve assets of the diversified U.S. stock market, the pace allows us to become more conservative asset allocation.
how to mitigate the potential face of China's foreign exchange reserves Impact
subprime crisis, the U.S. Government to implement the very loose fiscal and monetary policies that laid the depreciation of the dollar and U.S. debt has shrunk the double risk of market value. So, Chinese investors should be how to ease the subprime mortgage crisis on China's foreign exchange the potential impact on reserves management do?
First, the Chinese investors should control the foreign currency reserve assets of U.S. dollar assets, the overall risk exposure. This includes both China should stop its massive holdings of U.S. Treasury bonds, commodities into cash holdings , the equity futures, or suppliers, including China, can be appropriately holdings euros, yen-denominated assets or assets to SDR; Secondly, in the range of U.S. assets, China could consider the market conditions in the current holdings of U.S. corporate bonds and equity, as with the current bond market bubble in the U.S. than the U.S. corporate bond market and stock market bubble is relatively controllable; again, even if China is to continue to buy U.S. treasury bonds, China should also conditionally holdings of U.S. Treasury bonds, to mitigate potential future inflation eroded the purchasing power of the real national debt. This includes China could buy more U.S. Treasury yields and inflation-linked bonds (TIPs), also can ask the U.S. government issued China's Renminbi denominated bonds (the Panda bonds).
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