China stock market

Yuan weakens to lowest close in more than four years as stock markets also fall

Thin turnover in Hong Kong put down to investor caution over upcoming US Federal Reserve interest rate decision

PUBLISHED : Thursday, 10 December, 2015, 9:11am
UPDATED : Thursday, 10 December, 2015, 6:26pm

The yuan weakened on Thursday to close at a more than four-year low in what appears to be a concerted effort by mainland China’s central bank to weaken what many analysts argue is an overvalued currency ahead of next week’s anticipated US rate increase.

Meanwhile, Hong Kong and mainland stock markets fell in limp trading.

Reports of a small explosion on Wednesday night outside the Legislative Council building had no impact on local trading sentiment said Kenny Tang Sing-hing, chief executive of Jun Yang Securities. The session’s thin turnover, at HK$69.5 billion, was instead put down to investor caution over the upcoming US Federal Reserve decision.

The Hang Seng Index fell 0.45 per cent to 21,704.61 and the H-share index dropped 1.13 per cent to 9,450.49 in the sixth straight day of losses. The Shanghai Composite Index slipped 0.49 per cent to 3,455.50 and the Shenzhen Composite Index lost 0.11 per cent to 2,211.86.

The fundamentals argue for a weak renminbi
Michael Every, Rabobank

The yuan fell again, brushing against intraday four-year lows reached in August when the People’s Bank of China suddenly priced the daily midpoint lower against the US dollar. Unlike August, when the sudden change in direction unhinged investors, and sent markets and currencies tumbling, the recent pattern of devaluation was anticipated by traders.

The onshore yuan closed at 6.4378 to the US dollar, while the offshore yuan at one point traded at 6.4870 on Thursday with many analysts predicting the yuan will fall further now the currency has won International Monetary Fund reserve currency status.

“The fundamentals argue for a weak renminbi. With the Fed hike coming up it gives (the People’s Bank of China) a perfect offshore excuse,” to weaken the yuan, said Michael Every, financial services research head at Rabobank.

The yuan is still around 15 per cent overvalued on a real trade-weighted basis, Lombard Street Research analysts wrote in a recent report, and will need to fall further if China’s economy is to rebalance and growth pick up.

Securities firms were one of the few sectors to chalk up gains after mainland regulators released basic details of a new initial public offering system that analysts hope will make it easier to list firms and subscribe for shares, both positives for brokerage stocks.

The mainland’s largest brokerage, Citic Securities, rose 0.22 per cent in Shanghai to 17.83 yuan and Haitong Securities gained 0.20 per cent to 15.21 yuan. The sector’s Hong Kong-traded shares were mixed for the day.

Hong Kong’s most highly traded stock by turnover, Sino-Ocean Land, rose 2.23 per cent to HK$5.05, extending recent gains after it was first revealed on Monday that Anbang Insurance was buying a roughly 20 per cent stake off existing shareholders.

Property stocks were broadly down with China’s largest developer by sales revenue, China Vanke, off 3.26 per cent at HK$20.80, and China Overseas Land & Investment dipping 3.51 per cent to HK$26.10. After posting strong gains in the morning, Geely Automobile fell back to close down 2.06 per cent at HK$4.27. The carmaking sector rallied strongly this week after the central government announced subsidies to help rural residents buy cars.