China’s yuan currency slipped despite the efforts of the authorities on Thursday, as the gloom in global markets obscured signs that China’s economy may not be weakening as fast as some investors had feared.
After a fragile morning, however, the country’s stock markets struggled back into the black, though they remain sharply down for the year and just a few percentage points above their lowest ebb during last summer’s crash.
China’s central bank set a firmer midpoint rate for the yuan, signalling determination to hold the line against expectations of a sustained depreciation of a currency that has lost 5 per cent of its value against the dollar since August.
The yuan, nonetheless, weakened during the day.
“The onshore yuan weakened in early trade, taking cues from the offshore yuan. The offshore was down probably because liquidity improved,’’ said a dealer at a foreign bank in Shanghai who also noted strong dollar demand.
Traders said offshore liquidity had been very tight earlier in the week due to buying by state-backed banks, acting at the central bank’s behest, which pushed overnight borrowing rates in Hong Kong to record highs, making it prohibitively expensive to bet against the yuan.
Beijing economic policy
A turbulent start to 2016, with the currency and stock markets tumbling, had stoked concerns that Beijing was losing its grip on economic policy, just as the country looks set to post its slowest growth in 25 years.
Asian share markets weakened across the board on Thursday, hit by steep losses on Wall Street overnight as a rout in oil prices heightened worries about the global economy.
China’s main stock indexes, however, reversed direction early in the afternoon session, pulling the Shanghai Composite Index up 0.8 per cent on the previous day, while the CSI300 index was up 1 per cent.
The indexes have lost about 15 per cent so far in 2016 and are not far from their 2015 lows, chalked up during August after losing more than 40 per cent from early June.
Zhou Lin, analyst at Huaitai Securities, said it was just a matter of time before the indexes fell below that milestone.
“Investors see no good reason to buy stocks now the yuan is depreciating, the US is raising rates, and the economy is deteriorating. You need real money to support the market, not just rhetoric,’’ he said.
Tighter monitoring
The Shanghai and Shenzhen stock exchanges had said late on Wednesday that they have stepped up monitoring to ensure listed companies’ major shareholders are abiding by new rules designed to restrict their sales and prevent a build-up of pressure that might lead to another crash.
On Wednesday, China’s share markets had appeared to take no comfort from December trade data that beat forecasts and tempered some of the fears about the slowdown in the world’s second-largest economy.
The better-than-expected performance of exports may have been helped by the depreciation of the yuan, which accelerated last week.
The People’s Bank of China set the midpoint rate for the tightly managed currency at 6.5616 per dollar on Thursday, firmer than both the previous fix of 6.563 and Wednesday’s closing quote 6.5743.
The spot market was changing hands at 6.5898 in the early afternoon, 155 pips weaker than the previous close. The spot rate is allowed to deviate 2 per cent either side of the daily fix.
The liquidity squeeze in the offshore market has narrowed the gap with the onshore market, and on Thursday the offshore yuan was trading 0.3 per cent below the onshore spot at 6.6080 per dollar.