Having fallen to the lowest level since December 2014 in early trade, Chinese stocks finished Monday’s session modestly higher, buoyed by renewed strength in the Chinese yuan, bargain hunting and, potentially, further intervention from government-backed authorities.
The benchmark Shanghai Composite opened at 2,844.70, the lowest level seen since December 10, 2014, but it found instant buying support and hit an intraday high of 2,945.44 before easing into the close.
At the lows of the session, the index briefly lost in excess of 45% from the multi-year high of 5,178.19 struck on June 12 last year.
The daily chart below from Thomson Reuters reveals the scale of the recent sell off, something that has seen the index lose more than 20% since late December.
Like the Composite, most mainland indices finished in the black.
The only exception was the SSE 50 – an index containing the 50-largest firms by market capitalisation in Shanghai – which closed with a minuscule decline of 0.04%.
Small cap indices such as the Shenzhen Composite, CSI 500 and tech-heavy ChiNext all finished higher by more than 1%.
The rebound in Chinese stocks, along with broader risk assets in Asia, coincided with a sharp appreciation in the value of the offshore traded yuan, or CNH.
The 5-minute chart below from Investing.com reveals the sudden strengthening in offshore trade yuan that occurred earlier in the session.
On Monday the PBOC fixed the onshore traded USD/CNY rate at 6.5590, well below the last traded price of 6.5840 and Friday’s fixing level of 6.5637.
The renewed strength in the yuan – both onshore and offshore traded – follows news that the PBOC will start applying a reserve requirement ratio to some banks involved in the offshore yuan market from January 25 this year.
According to the PBOC, the ruling will only impact offshore traded yuan liquidity, not that in onshore markets.
By forcing some banks to hold minimum levels of yuan reserves, it may increase the cost to borrow offshore yuan short-term, making it more expensive for those looking to speculate on further yuan weakness.
Here’s the Asia market scoreboard as at 6pm AEDT.
Stocks
- ASX 200 4858.70 , -34.10 , -0.70%
- Nikkei 225 16955.57 , -191.54 , -1.12%
- Shanghai Composite 2914.49 , 13.52 , 0.47%
- Hang Seng 19346.99 , -173.78 , -0.89%
- KOSPI 1878.45 , -0.42 , -0.02%
- Straits Times 2587.12 , -43.64 , -1.66%
- S&P 500 Futures 1252.71 , 1.36 , 0.11%
Forex
- USD/JPY 117.24 , 0.19 , 0.16%
- USD/CNY 6.5839 , -0.0306 , -0.46%
- AUD/USD 0.6904 , 0.0037 , 0.54%
- NZD/USD 0.6472 , 0.0010 , 0.15%
- AUD/JPY 80.94 , 0.56 , 0.70%
- EUR/USD 1.0878 , -0.0036 , -0.33%
- GBP/USD 1.4275 , 0.0021 , 0.15%
- USD INDEX 99.115 , 0.1590 , 0.16%
Commodities
- Gold $1,090.51 , $1.80 , 0.17%
- Silver $13.94 , $0.02 , 0.11%
- WTI Futures $28.82 , -$0.60 , -2.04%
- Copper Futures ¥34,940 , -¥100 -0.29%
- Iron Ore Futures ¥319.00 , ¥11.00 , 3.57%
10-Year Bond Yields
- Australia 2.699%
- New Zealand 3.290%
- Japan 0.196%
- Germany 0.487%
- UK 1.664%
- US 2.037%
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