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2nd LD-Writethru: China's forex reserves rise unexpectedly in June

Xinhua, July 8, 2016 Adjust font size:

China's foreign exchange reserves increased 13.43 billion U.S. dollars in June from the previous month to 3.21 trillion U.S. dollars, central bank data showed on Thursday.

Market analysts expected June's data would have dipped by at least 20 billion U.S. dollars.

Bloomberg chief Asia economist Tom Orlik said that yuan weakness and the Brexit shock came too late in the month to drive substantial capital outflows.

Valuation effects might also have contributed to the increase, as June saw sharp appreciation of the yen and substantial depreciation of the pound, Orlik said.

"Assuming the yen has a heavier weight in China's reserves, that would have pushed up the headline figure," he said in a research note.

The rise in forex reserves last month showed that the foreign exchange market conditions were not as bad as people had imagined, said Guan Tao, researcher with the China Finance 40 Forum.

Chinese investment in foreign stocks and bonds had good yields, and Brexit did not bring panic to the market nor massive purchases of the U.S. dollar, Guan said.

International capital may flow back to emerging markets including China if the global forex market calms down with lower hedging demand, whereas the yuan will see greater fluctuation if market sentiment deteriorates, raising the pressure of capital outflow, Guan said.

China's reserves, the largest in the world, fell by 27.9 billion U.S. dollars to 3.19 trillion U.S. dollars in May, the lowest level in nearly five years.

China began to see a falling trend in its forex reserves in November 2015 due to concerns over a weak yuan and capital outflow, but the reserves returned to growth in March as fears eased amid signs of stabilizing economic growth.

Forex reserves denominated in Special Drawing Rights (SDR), an international reserve asset, rose by 16.16 billion SDRs to 2.29 trillion SDRs in June, the central bank data showed.

China's official gold reserves stood at 77.43 billion U.S. dollars in June, up from 70.48 billion U.S. dollars in May, according to the data. Endi