Asia-Pacific stock markets saw little change on Wednesday, following muted rises for major U.S. indexes overnight.

Wednesday’s Big Theme

China’s yuan has outperformed other major currencies against the U.S. dollar over the past six months, against a backdrop of ongoing trade concerns and heightened stock volatility. But the yuan’s resilience might not last long, as the greenback makes a comeback.

What’s Happening

During the recent selloff of emerging-market currencies, the yuan stood out, falling at a relatively modest pace against the dollar. The yuan—which in February reached its highest level since China’s central bank devalued it in August 2015—has pulled back a bit in recent months during the dollar rally. But demand for the yuan has continued, due to continued inflows of capital into China’s equity and bond markets.

The central parity rate of the yuan on Wednesday strengthened 0.2% to 6.4040 against the dollar, its biggest one-day boost since May 14.

Market Reaction

James Cheo, a senior investment strategist at Bank of Singapore, said support for the yuan has been bolstered by both the Stock Connect trading link with Hong Kong—which allows foreign investors to trade bonds and equities in Mainland China—and the MSCI Index’s recent inclusion of yuan-denominated A-shares.

He said persistent bond inflows had likely been driven by allocations into yuan-denominated bonds by investors and reserve managers—boosted by Bloomberg LP’s March decision to add yuan-denominated bonds to its Bloomberg Barclays Global Aggregate Index starting April 2019.

“The strength of [the renminbi] can hold up provided China data remains strong and U.S.-China trade tensions don’t flare up,” he said.

But UBS said it doesn’t expect the yuan’s strength to last, as “slower economic activity in China is likely to set the yuan up for an underperformance” versus other major currencies.

UBS expects the yuan in trade-weighted terms to drop 4-5% over the next year, reversing most recent gains. Bank of America Merrill Lynch also stayed bearish on the yuan, keeping its forecast profile for thr USD/CNY pair unchanged at 6.60 for the end of this quarter—versus the current 6.396—citing dollar strength and the negative effects of deleveraging efforts on China growth and credit risks.