Stocks flat after depreciation of yuan
Print Edition
SHANGHAI shares ended flat yesterday after the central bank allowed the yuan to depreciate to its lowest level against the US dollar for almost three years.
The Shanghai Composite Index closed down 0.01 percent at 3,927.91 points.
Earlier in the day, the People’s Bank of China set the midpoint for the currency at 6.2298 yuan to the dollar, a rise of 1.9 percent from 6.1162 on Monday.
The central bank’s move came hot on the heels of the release of weak economic data, which included a sharp fall in exports and producer prices dropping to their lowest level for almost six years.
While the weaker yuan should benefit China’s exports, it will also result in capital outflows from the stock market and hit asset valuations, with the financial and property sectors likely to suffer most, UBS Securities said in a note.
Wang Yang, a researcher with Guotai Junan Futures, said it will not be long before the central bank cuts interest rates again to offset the pressure of the capital outflows.
Stock performance diverged on the news. Companies in the aviation sector, which tend to hold large amounts of debt denominated in US dollars, suffered the most, with the shares of China Eastern Airlines and China Southern Airlines both falling by over 7 percent.
In contrast, industries that rely heavily on exports were among the biggest winners, with the textile manufacturing sector rising 4.5 percent.
The banking sector was also weak yesterday. China Merchants Bank lost 2.3 percent to 18.20 yuan (US$2.88), the Bank of Beijing fell 2 percent to 9.08 yuan, and the Industrial Bank dropped 2 percent to 15.96 yuan.
The flat overall performance brought to an end two days of gains led by speculation about government reforms of state-owned enterprises.
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