State Street says China’s move to manage yuan will lift old economy stocks
State Street expects Hang Seng Index to go past its all-time high when inflows from the mainland through the stock connect programmes reach 10 per cent of Hong Kong’s total market turnover from about 7.5 per cent now
China’s old economy stocks are likely to get a boost from the central bank’s decision to adjust its currency setting mechanism, as a slight depreciation in the yuan will stimulate exports and growth, according to State Street.
The move by the People’s Bank of China to remove the “counter-cyclical factor” from the formula used to calculate the daily central parity of the yuan’s exchange rate against the US dollar suggests it was aimed at curbing recent sharp appreciation in the currency.
The counter-cyclical factor was initially introduced in May to lessen the effect of market forces on the price setting of the reference rate amid depreciation pressure on the yuan and capital outflows.
“It makes sense for them to remove the cyclical factor now, which should benefit the economy in the second half of the year,” said Ben Luk Ting-wai, global macro strategist at State Street. “Old economy stocks should outperform new economy sector this year.”
