However, it also comes at a time of continued market volatility in China stemming from growth concerns and confusion over the central bank’s foreign exchange policy.
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The CSI300 index of the largest listed companies in Shanghai and Shenzhen dropped 6 percent to 2940.51, also its lowest since the beginning of December 2014.
Also, brent crude prices fell 6.3 per cent to $30.15 a barrel during trade today, also leading United States and other major Asian stocks to fall. A 13 per cent loss in USA oil prices this year has raised questions about the outlook for already low inflation and added a sense of general uncertainty in markets. “However, I do not think the market expectation of a weaker yuan has been changed and many people believe it will fall around 5 percent this year”. China last week reported gross domestic product (GDP) growth of 6.9 percent in 2015, and 6.8 percent in the final quarter of the year, its slowest rate since the global financial crisis in 2009.
“Another factor that drove down stocks is a fear among Chinese that as their economy slows, the value of their currency, the yuan, will continue to drop”. Trading volumes have thinned, making price moves even more volatile, as many investors have given up on Chinese stocks since last summer, when shares crashed 40 percent.
Beijing intervened to stem that rout and orchestrate a recovery of sorts, but anyone who mistook that for a bottom and bought back in will be nursing hefty losses again.
Spot yuan was yesterday at 6.5796, just a few pips from Monday’s close, while offshore it weakened to 6.6194, a 0.6 percent discount to the onshore rate.
Liquidity conditions often tighten before the New Year holiday week, which begins on Lunar New Year’s eve on February 7, and the central bank usually injects large amounts of cash into the money market to keep interest rates steady.
But those funds are largely of a short term nature, and the massive injections may have dashed some investors’ hopes that the PBOC would cut banks’ reserve requirements (RRR) soon to free up more money for longer term lending which could boost economic activity.
“Soros’ challenge against the renminbi (yuan) and Hong Kong dollar is unlikely to succeed, there is no doubt about that”, the People’s Daily overseas edition said in a front-page opinion piece on Tuesday.
China’s outflows last month increased nearly $50bn from a month earlier, highlighting the battle facing policy makers trying to hold up the yuan amid the slowdown, according to Bloomberg Intelligence estimates. Hong Kong’s Hang Seng dropped 2.5% at 18,863.64.
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Analysts at Guojin Securities, meanwhile, said sentiment had been affected by a recent scandal at the Beijing branch of Agricultural Bank of China, in which 3.9 billion yuan (more than $590 million) in acceptance bills went missing from the bank’s coffers.
