Global investors are continually buying into the rally in China's equity market, which has taken the renminbi to its highest level in several months and reinforced hopes that the country's earlier economic recovery would sustain the bullish market sentiment, analysts said.
Chinese stocks extended their rally on Tuesday, with the CSI 300 index of shares listed in Shanghai and Shenzhen gaining 2 percent in early trading, although the rise slowed to 0.6 percent at the close. On Monday, the index surged 5.67 percent, its biggest daily gain in five years.
The People's Bank of China, the central bank, set the central parity of the RMB exchange rate against the US dollar, or the daily trading reference, at 7.0310 on Tuesday, up 353 points from Monday, the largest daily appreciation since April 9. The offshore yuan strengthened past 7 per dollar for the first time since March.
The huge influx of "northbound capital", which flowed from overseas to the mainland through stock connect programs linking onshore and offshore capital markets, indicated that global investors are buying Chinese stocks. The rally resulted in large demand for the renminbi and strengthened its value, Guan Tao, chief global economist at BOC International (China) Co Ltd, told China Daily.
According to Wind Info, a Chinese financial data platform, net inflows of northbound capital totaled 53.8 billion yuan ($7.66 billion) in the four consecutive trading days ending on Tuesday.
"Basically, the booming stocks and currency are supported by an optimistic outlook for China's economic fundamentals, as domestic COVID-19 infections have largely been brought under control and the latest purchasing managers index showed a strong rebound," said Guan, who is also a former senior official with the State Administration of Foreign Exchange, the nation's foreign exchange regulator.
To offset the economic impact of COVID-19, central banks around the world have flooded financial markets with ample liquidity.
