Investment Newsletter – June 2021
Globally, in May, the number of new cases and deaths reported continued to decrease, with over 4.1 million new cases and 84 000 new deaths reported. The European region reported the largest decline in new cases and deaths as end week of May, followed by the South-East Asia region. Nevertheless, Asia-Pacific is experiencing a renewed surge in infections, with India, Malaysia and Japan among countries that have reported record increases in daily COVID-19 cases. Furthermore, Our World in Data showed that Asia-Pacific is far behind North America and Europe in rolling out COVID-19 vaccinations, suggesting a potential new risk of a COVID-19 resurgence in the West.
As of 31 May 2021, China has officially further relaxed its family planning policy, supporting couples that wish to have a third child. Noting that the aging of the population in China has deepened in recent years, China is now determined to optimize the childbirth policy and implementing the policy to allow couples to have three children with supportive measures will help improve China’s population structure, but remain challenging.
The People’s Bank of China (PBoC) on 31 May 2021, said that it will increase the reserve requirement ratio (RRR) for foreign exchange deposits by 2 percentage points to 7% from 5%, effective 15 June. Predictably, the announcement hit the yuan. However, there may be limited impact on the yuan’s exchange rate over the longer term, since it does not shift fundamental factors driving yuan strength, such as the difference in policy stances of the PBOC and the Federal Reserve. In a scenario where the Yuan appreciation is sustained, it could lead to substantial consumer price inflation and thus force the PBoC to tighten monetary policy prematurely.
