China Financials Unbowed by Western Banking Turmoil, De-Dollarization in Asia Begins Taking Shape

While shares of US and European banks have been roiled by liquidity concerns and failures or near-failures of several banks over the past couple of weeks, Chinese financials have outperformed. China has had no shortage of their own banking sector issues over the past several years, but they now find themselves largely isolated from some of the key issues negatively impacting their Western peers.

US monetary policy may now have to shift to accommodate increasingly fragile banks and that could derail the US Dollar’s relative strength in foreign exchange markets. This comes as several Asian nations, are stepping up their efforts to decrease international reliance on Dollars and US-based payment systems.

Related ETFs: iShares MSCI China ETF (MCHI), Global X MSCI China Financials ETF (CHIX), iShares MSCI Emerging Markets ex China ETF (EMXC), Invesco DB US Dollar Index Bullish Fund (UUP)

As the US attempts to contain pockets of illiquidity in its banking system, China and other Asian markets that have increasingly moved away from western economies – or have been pushed away by sanctions – find themselves less concerned with a potential crisis. Per Reuters, more than a dozen Chinese tech startups who held US Dollars and set up accounts at the now bankrupt Silicon Valley Bank have indicated that their exposure to the bank was minimal and any uninsured deposits were not a material portion of their assets. Even if they had been more heavily exposed, however, the FDIC has already stepped in to insure all deposits, regardless of the amount.

Interestingly, Chinese banks have become somewhat of a haven in the global financial sector in the aftermath of the Silicon Valley Bank (SVB) and Credit Suisse collapses. Of the 166 listed lenders tracked by the Bloomberg World Banks Index, eight of the top 10 performers in the month to March 20 were from China. A more restrictive financial policymaking and regulatory framework was just unveiled during the National People’s Congress this month, essentially giving the Chinese Communist party more oversight of the banking system and prioritizing stability and security over development.

MRP has covered bank failures and corruption throughout China’s troubled financial sector for years, recently exacerbated by the meltdown of the country’s sprawling property market, but an ongoing decoupling from global markets and vastly…