Sat, Aug 15, 2015 - Page 15 News List

China stocks finish up amid yuan drop

DEPRECIATION SLOWING:After three days of sliding yuan valuation, it seems the market has stabilized and the measures taken to avoid a crash have been effective

Bloomberg

A man changes currency into Chinese yuan at a currency exchange office in Hongqiao airport in Shanghai yesterday.

Photo: AFP

China’s benchmark stock index capped its biggest weekly gain in two months, led by commodity companies, amid speculation that the weaker yuan might help to shore up the world’s second-biggest economy.

The Shanghai Composite Index rose 0.3 percent to 3,965.34 at the close, taking this weeks advance to 5.9 percent. The yuan slid 3 percent this week after Tuesday’s surprise devaluation and was little changed yesterday.

The Hang Seng China Enterprises Index added 0.4 percent, paring this week’s loss to 1.7 percent.

While yuan devaluation roiled markets around the world this week on concern a weaker currency could trigger competitive devaluations and spur deflation, depreciation has since slowed after China signaled support.

Data this week showed exports tumbled and industrial production grew slower than expected.

“The prevailing local view seems to be that the cut was reasonable considering the slowdown in the economy,” Shenwan Hongyuan Group Co (申萬宏源集團) sales trader Gerry Alfonso said in Shanghai. “There is a perception that the authorities will introduce further measures to support the economy.”

The Shanghai gauge rose for five out of the past six weeks after the government introduced a flood of measures to stabilize mainland equities following an almost 4 trillion yuan (US$625 billion) rout. The moves have not convinced foreign investors to buy shares of Chinese shares in Hong Kong, where the H-shares measure extended this quarter’s loss to 15 percent, the worst performer among global benchmark gauges.

The CSI 300 Index slipped 0.1 percent, while the Hang Seng Index retreated 0.2 percent. Trading volumes in Shanghai were 10 percent below the 30-day average.

A gauge of energy and material companies in the CSI 300 surged at least 6.4 percent this week. Sinopec Shanghai Petrochemical Co (上海石油化工) jumped 7.7 percent yesterday, extending a five-day gain to 22 percent, after the Economic Information Daily reported that the government has drafted a five-year plan on oil and chemical industry development. Aluminum Corp of China Ltd (中國鋁業) surged 12 percent this week.

The Shanghai Composite has risen 23 percent this year, spurred by the unprecedented measures to shore up markets including banning stake disposals by major shareholders, suspending initial public offerings and compelling state-run institutions to purchase equities.

Margin traders increased holdings of shares purchased with borrowed money for a fifth day on Thursday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to 885.13 billion yuan.

In Hong Kong, airlines rose after plunging earlier in the week on concern a weaker yuan will boost the costs of servicing their US dollar-based debt.

China Southern Airlines Co (中國南方航空) climbed 3.5 percent, trimming this week’s loss to 17 percent. Every 1 percent drop in the yuan cuts 767 million yuan from annual profit, according to the carrier’s analysis in its financial report last year. Air China Ltd (中國國際航空) rose 3.3 percent, paring the loss for the week to 14 percent.

China has enough firepower to control its currency market and the worst of the yuan selloff that started on Tuesday is probably over, Nomura Holdings PLC strategists Jens Nordvig and David Fritz wrote in a note.

The nation’s foreign reserves remain the largest in the world and enough to cover two years of imports even after shrinking to US$3.7 trillion from a peak of US$4 trillion, Nomura said.

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