Bloomberg News

The Chinese yuan is having a greater impact on its emerging-market counterparts than ever before and may play a crucial role in determining their performance in the coming year.

The currency’s correlation with an MSCI Inc. index of its developing-nation peers rose to record in September on a weekly basis before edging back slightly amid the omicron outbreak, Bloomberg data show. While the close relationship is partly a result of China’s large weighting, it’s also been driven by the yuan’s links to the Brazilian real reaching the strongest since at least 2008, and that with India’s rupee touching a three-year high.

The yuan’s rising global influence is yet another sign of China’s deepening connections across the world economy. Investors are increasingly being drawn to its bonds as an alternative to U.S. Treasuries, while some banks are calling for the yuan to join the dollar, euro and yen as a global reserve currency. Yet with China’s potential being offset by murky policy making and regulatory crackdowns, being tied too closely to the yuan may also backfire.

READ MORE