Property stocks aided yesterday’s turnaround, with the CSI China mainland real estate index rising 2.2 per cent ahead of the release of July home price data today.
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The yuan fell against the dollar on Tuesday despite a slightly stronger midpoint set by the central bank, and traders expect the currency to remain under downward pressure as the economy struggles.
Razia Khan, chief Africa economist of Standard Chartered, said China’s move was happening at a hard time for many African economies which have been buffeted by volatility that has sent many regional currencies lower this year as oil prices dropped and the dollar surged.
The devaluation is also to make its exports more competitive following the slowdown in its economic growth.
China’s stock market has tumbled 6.1% amid fears of further devaluation of the country’s yuan currency.
A number of emerging market currencies meanwhile are facing capital outflows also as investors shift funds to the dollar, interest rates on which look set to rise.
Devaluation – or a market-driven move?
For Asia, exports are more skewed towards meeting the demands of a supply chain central for China.
“For the moment, the PBoC seems to prefer flexibility, by adding liquidity incrementally and the concern is probably that the market, taking RRR cuts as big easing moves, may push the RMB further”, wrote Societe Generale in a morning note. “These two concerns dominate their minds now”, said Masaru Hamasaki, head of market & investment information department at Amundi Japan. Less than two years ago, the maximum range of currency movement was at a much tighter 1% up or down. The yuan held little changed at 6.3902 to the dollar in the onshore trade.
China’s foreign-exchange reserves are expected to drop by some US$40 billion (S$56.35 billion) a month as the central bank intervenes to support the yuan, a Bloomberg survey shows.
China’s securities regulator said last Friday that the government would allow market forces to play a bigger role in determining stock prices, the first official signal from Beijing that it could be moderating its efforts to prop up equity markets via state-backed financial institutions. According to the PBOC, market makers’ expectations diverged, and the market rate deviated from the central parity for an extended period.
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Spot gold was up 0.5% at $1,119.33 an ounce by 2.01pm GMT, while US gold futures for December delivery were up $5.60 an ounce at $1,118.30. But in the case of the currency, I believe China is definitely on a path to liberalization, and widening the band of where the currency can go is simply part of this liberalization process and not necessarily a straightforward devaluation.
