Wednesday, January 13, 2016

China Stocks Recover, Asian Markets Breathe Sigh of Relief

China

Shares Recover in Asia- Chines Yuan Stable for 3rd Day


Trading seemed to remain uneven on the mainland stock market though shares recovered in Asia recently as the Chinese Yuan become stable for the third straight day. The Shanghai Composite Index SHCOMP, +0.17% increased 0.4% to 3028.04 though traded up and down as around 1% from its earlier close.

The main stock market of China dropped 5.3% last week amidst fear that the authorities of China seemed to be unable to stem the latest chaos in the financial markets as well as s slowdown in the larger economy. In another place, the Australian S&P/ASX 200 XJO, -O.14% dropped 0.1%, South Korea’s Kospi SEU, -0.21% was flat while Hong Kong’s Hang Seng Index HSI, -0.84% rose 0.2%.

Where the markets seemed to be closed for national holiday on Monday in Japan, the Nikkei Stock Average NIK, -2.71% tracked Monday’s regional losses dropping 2%. The Chinese Yuan sustained to steady on Tuesday but the central bank directed the slightly weaker currency. Previously, the Chinese authorities had fixed the Yuan at 6.5628 per U.S. dollar when compared with 6.5626,on Monday.

Offshore Currency Hits Strongest Level


China’s onshore Yuan that could trade 2% below or above the fix, had traded last at 6.5733 per dollar, weaker than 6.5695 at Monday’s close and the currency had reached a five year low of 6.5956 last week. Offshore currency had hit its strongest level from the beginning of the year on Tuesday and had trade last at 6.5705.

The offshore Yuan, which tends to trade freely, on late Monday, strengthened by around 1.5% to 6.5827 to one U.S. dollar when compared to the earlier close, which helps to contract the gap between the onshore and offshore Yuan to its tightest in two months. Traders are of the opinion that the offshore Yuan is strengthening since state-owned Chinese banks tend to buy the currency, which is an intervention by central bank of China.

This had limited the supply of the offshore Yuan, thereby tightening the liquidity and sending the rate at which the Hong Kong banks tend to lend Yuan to each other overnight, to a record high of 66.815%, on Tuesday. The rate soared to 13.4% on Monday from 4% on Friday.

According to Tommy Ong, head of Wealth Management Solutions at DBS in Hong Kong commented that `a lot of channels bringing money from onshore to offshore market has been blocked which also tends to contribute to the shortage of Yuan in Hong Kong.

Beijing Continues to Affect Global Market Mood


The regions’ stock gains Tuesday, tends to offer some absolution after the chaos of the earlier week caused by a faster than anticipated depreciation of the Yuan, when the currency had fallen 1.5%. The stock regulators also seemed to come in last week in order to calm the trading stating that they would do away with a circuit breaker which tends to aggravate selling and extend a ban on big shareholders from selling the shares.

However, China shares are presently roughly just 3% above their summer low on August 27 after a 3 month retreat wiped trillions of U.S. dollars from the marketplace, sparking a global selloff. Traders as well as analysts state that they are uneasy since Chinese authorities oppose with the prospect of increasing the capital outflows from the world’s second largest economy.

Market analyst at Brokerage IG, Bernard Aw,in a morning note had written that `for now, it may seem like the tweaks that Beijing makes will continue to affect global market mood.

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