China Makes a Grab for More International Trade

China Makes a Grab for More International Trade

Depreciation of the yuan could help Chinese exporters and boost the overall economy, but analysts cautioned the move could make yuan-denominated assets such as stocks less attractive and cause capital outflows from the country.

The move to depreciate the currency by 1.86 percent sent Hong Kong and mainland shares on a rollercoaster ride, swinging between losses and gains as investors mulled the long-term impact.

The benchmark Shanghai Composite Index settled largely flat, edging down by 0.51 points to close at 3,927.91 on turnover of 712.3 billion yuan.
The Shenzhen Composite Index, which tracks stocks on China’s second exchange, added 0.41 percent, or 9.43 points, to 2,284.27 on turnover of 623.1 billion yuan.

“There were big fluctuations in [domestic] A-shares after the announcement, as investors are not sure whether it’s a one-off measure or if there will be continuing depreciation of the yuan,” Shen Zhengyang, an analyst from Northeast Securities, told AFP.

“The devaluation could lead to an outflow of funds while the benefit to corporate profits is small, so the overall effect on the stock market is neutral to weak.’’

Aviation shares were hit hard, on fears a weaker yuan could hurt airline profits and make servicing their dollar-denominated debt more expensive.
Shanghai Juneyao Airlines dropped by 2.47 percent to 61.67 yuan and Hainan Airlines lost 3.52 percent to 5.48 yuan.

In Hong Kong, China Southern Airlines led the slump to end down by 18 percent at HK$6.76 while China Eastern Airlines lost 16.5 percent to close at HK$5.45, and Air China sank by 13 percent to HK$7.40.

Insurers also fell in Shanghai. Ping An Insurance slid by 0.63 percent to 34.87 yuan and China Pacific Insurance sank 1.03 percent to 25.91 yuan.
Other companies with exposure to mainland China listed in Hong Kong advanced, however. CNOOC added 3.9 percent to HK$9.91 and China Overseas Land gained by 3.1 percent to HK$25.10.

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