“Europe has been, and will be one of the major markets for investing China’s exchange reserves,” said SAFE, the State Administration of FX in China. The chatter yesterday in the morning’s FT and paraphrased by the markets at 3pm in the afternoon that China will reassess their euro holdings is “groundless,” SAFE said. With Europe being China’s largest trading partner, China is not going to let Europe twist in the wind during this tough time and will likely keep their reserve allocation to euro assets at about 25%. They went on to say “We believe that with the joint efforts of the international community, the euro zone will be able to overcome its difficulties and maintain the steady and healthy development of European financial markets.” Behind the scenes though I’m sure China cannot be happy having such massive credit and currency exposure to the most highly leveraged regions of the world, the US and Europe.
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