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HSBC

Yuan midpoint set at weakest level since 2008

Currency moves closer to psychological 7 per greenback benchmark as leading banks predict further gradual decline

PUBLISHED : Wednesday, 04 January, 2017, 8:08pm
UPDATED : Thursday, 05 January, 2017, 11:34am

The yuan edged ever closer to the visually significant seven yuan to one US dollar mark on Wednesday. HSBC reaffirmed that it expected the Chinese currency to fall to 7.20 yuan to one US dollar by the end of this year, while rival Standard Chartered expected 7 yuan would be worth one dollar at the end of 2017.

As the market opened, the People’s Bank of China set the yuan’s mid-point rate versus the greenback at 6.9526, the weakest level since May 2008. China’s central bank only allows the onshore yuan to move a maximum 2 per cent from its mid-point rate in daily trade.

Current yuan depreciation is still liveable but could become insidious, warn analysts

The yuan then strengthened marginally to stand at 6.9450 per greenback.

Speaking in Hong Kong on Wednesday as she introduced HSBC Private Bank’s investment outlook for this year, HSBC private bank head of investment strategy for Asia Fan Cheuk-wan said the bank’s FX strategists forecast that the yuan’s depreciation to 7.20 against the US dollar would be gradual and orderly.

This depreciation trend would have a positive impact on the liquidity of the Hong Kong stock market as Chinese investors sought more assets overseas, hence money would flow south.

“Capital controls in China might lead to some volatility in the short term but this does not mean that it will reverse the direction of capital market reform,” Fan said, noting that the Hong Kong Shenzhen stock connect had opened last year despite speculation that it could be delayed due to attempts to restrict capital outflows.

Standard Chartered Wealth Management also issued their outlook for this year on Wednesday, and also noted concerns about capital outflow.

“With a strong US dollar and rising yields offshore, it will be difficult for the Chinese government to loosen monetary policies significantly without risking capital outflows. This caps upside for local currency bonds,” the report noted, saying that in China they preferred equities to bonds.

Standard Chartered Wealth Management head of investment strategy Will Leung reaffirmed the bank’s forecast of seven yuan to one US dollar as he introduced the report.

Globally, Standard Chartered Wealth Management predicted growth would accelerate in this year for only the second year since the financial crisis, as Russia and Brazil emerged from two years of recession and United States growth accelerated modestly. Asia including China was likely to remain the biggest contributor of global growth, they predicted.

HSBC private bank said that investors should look to North America or Asia this year, while avoiding Europe because political uncertainty contributed to declining growth prospects.

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