Yuan-Dollar Peg Ends; 9-Day Rally in Stocks

Mayank Mehta, Chandrasekhar Atreya and Sanjay Barot
21 Jun, 2010
New York City

China stocks gained the most in a fortnight, led by banks, airlines, and property firms after the government permitted a slow rise in the yuan.

[R]5:00 PM Hong Kong, China – China allows a more flexible yuan policy after 23-months. The move may spur higher imports and stave off rising domestic inflation. Stocks in Shanghai and Hong Kong closed sharply higher. China Southern passenger count rises 15%. Toyota and Honda increase wages at their parts plants in China.[/R]

China stocks gained the most in a fortnight, led by banks, airlines, and property firms after the government permitted a slow rise in the yuan.

Stocks in Hong Kong gained for the ninth consecutive day, the longest streak of gains in four years, after China allowed the yuan to partially float against the dollar. The yuan traded higher from the fixed peg of 6.83 to a dollar.

The Hang Seng Index gained 3.08% or 625.47 to close at 20,912.18 for its ninth day rally to reach the high since April 30. CSI 300 Index gained 3.13% or 84.50 to close at 2,780.66.

The Chinese currency yuan gained the most since July 2005 after China decided to loosen its peg to the dollar and closed at 6.7976 to a U.S. dollar in Hong Kong. However the People’s Bank of China said in its policy statement that it will not be a one-off revaluation of its currency.

China has said it will allow a more flexible yuan, a week before the Group of 20 summit meeting scheduled for June 26-27 in Toronto, Canada.

“The recovery and the upswing in the economy have been more solid with the enhanced economic stability. So, it is desirable to proceed further with reform of the renminbi exchange rate mechanism and increase its flexibility,” said the People’s Bank of China on its Web site.

Both Toyota Motor Corp and Honda Motor Co have decided to hike worker’s wages in their parts factories in China to prevent future lockouts after the decision by China to end the yuan peg to the dollar raised concerns about a possible decline in exports.

Workers at Honda Lock (Guangdong) Co agreed to the wage hike offer on June 18 and ended the strike. The fourth Honda affiliate to be hit by a walkout in the region, Nihon Plast Co, agreed to hike wages on June 19, as per Matsuo Suzuki, a spokesman for the company in Japan.

More than 20 provinces and cities in China have raised their minimum wages this year, the Shenzhen city government said on its Web site.

China Banking Regulatory Commission has ordered banks to inspect their lending to industries with over capacity or being highly polluting and submit their reports before the month end.

“Banks must not grant new loans to projects under construction in sectors with over capacity or that are polluting and do not comply with government policies,” said the commission in a statement distributed at a briefing in Beijing today.

Shanghai Movers

Air China Limited climbed 6.4% to 11.73 yuan after the company received approval from the European Commission to hold a 49% stake in Air China Cargo, a subsidiary of Air China Ltd.

China Eastern Airlines Corporation Limited added 5.5% to 7.93 yuan after the company announced the launch of its business travel program, offering Chinese corporations accounts for global air travel spend.

China Petroleum & Chemical Corporation rose 2.4% to 8.43 yuan.

China Southern Airlines Company Limited advanced 8.1% to 7.27 yuan after the company recorded a 15.2% year-on-year increase in passenger throughput in May to 5.48 million, reports Yicai.com, citing statistics released by the company.

[HK Movers

Angang Steel Company Limited increased 7.0% to HK$10.70.

China Shenhua Energy Company Limited, the coal producer, gained 5.8% to HK$32.50.

China Construction Bank Corporation, the lender, increased 4.2% to HK$6.67.

Industrial and Commercial Bank of China Limited rose 3.2% to HK$5.99 after the bank said it may delay fund raising till 2011.

PetroChina Company Limited, the oil producer, rose 4.3% to HK$9.21.