Chinese Company Risk Defaulting Off-Shore Bonds As Yuan Weakens

Yuan weakness may put a spike in some companies’ carry trades, adding another wrinkle of concern even as currency volatility has put emerging market corporate balance sheets under the microscope amid rising offshore debt loads.

“We have warned investors that the level of corporate indebtedness within emerging markets would mean that a close eye should be kept on corporate solvency,” Jefferies said in a note.

With Shanghai Chaori Solar Energy becoming the first Chinese company to default on its offshore bonds, the role of yuan carry trades – or bets that the Chinese currency would continue to appreciate – are also a concern, the bank said.

The yuan, also known as the renminbi, unexpectedly weakened recently, depreciating around 1.4 percent against the U.S. dollar since the beginning of February. The move caught many investors off guard as yuan appreciation was widely seen as a one-way bet. The currency has attracted considerable foreign investor demand in recent years on its steady appreciation and relative stability.


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Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu