Capital outflows signal bearish sentiment

China marked its first monthly outflow of foreign currency since 2007 in October as growing caution about China’s economy and lessening expectations for appreciation of the yuan encouraged international investors to repatriate their capital, The Wall Street Journal reported. The People’s Bank of China reported that the financial system sold a net RMB24.89 billion (US$3.91 billion) in foreign exchange in October, swinging from a net purchase of US$38.88 billion in September. A primary reason for the shift is that investors no longer see renminbi appreciation as a one-way bet: Falling international trade has shrunk China’s trade surplus in recent months, reducing the pressure on Beijing to appreciate its currency, and China’s leaders are now stressing that the value of the yuan should fluctuate in both directions. Analysts said the reversal in capital flow may open the door for the central bank to ease monetary policy, perhaps by cutting the banks’ reserve ratios.