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.

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.

“China is going to be a very important element of emerging-market stability and the growth picture,” said Magdalena Polan, principal economist at PGIM Ltd. in London.

“The willingness for Chinese policymakers to stabilize growth will be very important to the outlook for Latam and Asia and South Africa, as countries there still rely quite a lot on exports from China.”

While correlations can be measured in many ways, China’s increasing presence in global trade has progressively boosted the yuan’s links with those of its emerging-market peers.

In 2000, the average developing nation sent only 2.2 percent of its exports to China, while that proportion has now grown to 11.3 percent, data from Societe Generale SA （SocGen）show.

SocGen says the yuan’s relative stability has traditionally made it most closely correlated with those of its emerging-market peers with strong and credible policymakers such as Mexico, Chile and South Korea.

Since the U.S.-China trade war in 2018, however, the yuan’s links with emerging markets as a whole have grown stronger, with the average correlation rising to 83 percent that year, according to SocGen data. (SD-Agencies)