Lately we have seen rising signs of stress in China - showing up in four places:
Bond yields have shot higher
While still low, the pace of the sell-off is worth watching.
Equity markets have sold off again
The CSI300 onshore index is down more than 6% from the peak in late November.
CNH money market rates are back at January-highs, in a sign of offshore intervention.
Capital outflows have increased again lately
Recent data on the FX reserve and FX payments point to a pick-up in outflows.
While signs of stress are rising, they are not broad based as, for example, the CNY basket has been fairly stable. Credit spreads are also still very tight, despite the latest increase.
Nevertheless, this development bears watching. If stress continues, markets will quickly recall what happened in January last year shortly after the Fed hiked, and outflows could pick up further.
We see a clear risk that global markets have become too complacent about Chinese risks and that financial turmoil in China could resurface in 2017. Slowing growth, increasing financial imbalances and rising tensions with the US strengthen the risk.
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