Middle East Investors Eye Chinese Currency Assets As Ties Deepen

Middle East investors are looking to increase their holdings of assets denominated in China’s currency amid a flurry of economic and political exchanges between the two, the co-founder Dubai-based wealth management firm BTA said during a gathering in Shanghai earlier this month.

“Clients more and more are asking for CNY” – shorthand for the Chinese yuan, said BTA Finance’s Humberto Coelho on the sidelines of the “Forbes China Middle East Fireside Chat” organized by Forbes China, the Chinese-language edition of Forbes on July 11. BTA has more than $2 billion of assets under management.

Yuan-based investments allow investors to diversify assets that have traditionally been dollar- or euro-denominated, said BTA CEO and chief investment officer Luis Freire. “Clients now want to be a little bit outside of the traditional investment in dollars, euros or G7 currencies, and are looking to invest in local currencies in the Middle East, China, Brazil and India. They want to go in these markets to not to be linked only to the U.S. or the euro at all times.”

Asia broadly has become a focus of Middle East investors, and “regulators in the Middle East have been establishing agreements with Chinese authorities,” he said. “This gives an opening of opportunity for large investors to come and participate here.”

The large size of China’s economy and markets offers a diversified portfolios for clients, Freire said. “It is China’s economic moment” due to its growth in recent decades, he said.

Freire sees room for China’s currency to appreciate “a little bit” on the assumption economic growth in the country is picking up after a slowdown during the pandemic. “We were in an economic down cycle that I think now we’re coming slowly out of — the same as happened in Brazil with the change of the governments. New projects are coming in place, and we thinking these emerging countries have a lot of potential to grow for the coming years.”

The entry of the United Arab Emirates into the association of nations known as the BRICs last year has also opened “a lot of opportunities.” Dubai is really now a bridge between Asia, LATAM and Africa.”

As for U.S. interest rates, Freire noted, “the market is now anticipating one cut. It really depends on the numbers coming out from the U.S. economy. I don’t think that Powell will play with the rates before the election. If something is not happening by September, only after the election in December will we have a rate cut.”

The recent fall in the value of Japan’s yen, which has been putting downward pressure on other currencies in export-oriented Asia countries, may be easing, Freire noted.

Asian central banks “will not be so happy to have so a weak yen because that will have an impact on the exports for all these countries, that for sure,” he said.

Japan out of its own self-interest will likely work to ease the fall in the yen. “Japanese people will start also to pay the price (of the lower yen) because they are 100% importers of energy.” Freire said. “They need to find the balance between the energy price and the exports by Japanese industry.”

Eventually, he said, Japanese officials will also need to say “okay, enough” because “you will have difficulty to come back around the 120-130 yen that we normally expect.”

— with Julie Lu

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