China Indexes Lose Momentum, Yuan Under Pressure from Competitive Devaluation Worries

Li Chen
14 May, 2024
Hong Kong

Stocks in Shanghai and Hong Kong lacked direction, and investors awaited the release of earnings from Alibaba Group and Tencent Holdings. 

Benchmark indexes in Shanghai have rebounded after Chinese regulators and policymakers announced market-supportive measures and regional governments eased mortgage restrictions for new home buyers. 

The Hang Seng index extended 4-week gains to a nine-month high in the hopes that policymakers would follow through with more concrete measures to support the faltering property market in mainland China and that state-controlled financial organizations would step up their buying of domestic stocks. 

The yuan was also in focus and traded at 7.24 against the U.S. dollar on the growing worries of a string of competitive devaluations sparked by the sharp decline in the Japanese yen. 

Moreover, the widening gap between the U.S. and Japan interest rates is weighing on the Japanese yen, and traders are bracing for the yen to drop to as low as 170 against the U.S. dollar.

The persistent decline in the yen is likely to set in motion a chain of events that could force China, Taiwan, and Korea to devalue their currencies. 

The Japanese yen has fallen to the lowest level since 1992 against the yuan, trading at a low since 2008 against the Korean won, and the currency is hovering at a 31-year low against the Taiwanese dollar.

The Japanese yen inched 20 cents higher to 156.43 against the U.S. dollar in late Monday's trading in Tokyo.

 

China Stock Movers 

The CSI 300 index decreased 0.3% to 3,654.77, and the Hang Seng index dropped 0.1% to 19,089.83. 

ESR Group jumped 24.4% to HK$12.44 after the logistics group received a non-binding offer to go private. Warburg Pincus, the largest investor in the company, is not part of the consortium, but the company welcomed the takeover proposal. 

The consortium of private equity groups led by Starwood Capital Partners, Sixth Street, and SSW proposed to take the company private. 

The conditional offer was reported by the company in a filing with the exchange but the offer did not disclose the price.  

Electric vehicle makers, financial services providers, and Internet-driven companies were in focus in Tuesday's trading. 

Tencent Holdings increased 0.9% to HK$381.60, Meituan jumped 0.7% to HK$123.20, Alibaba Group rose 2.2% to HK$82.95, and Baidu advanced 1.1% to HK$108.60.

BYD advanced 0.3% to HK$223.40, Li Auto dropped 1.7% to HK$103.20, and Xpeng added 1.3% to HK$31.15. 

Bank of China decreased 0.7% to HK$3.70, China Construction Bank dropped 1.1% to HK$5.57, and ICBC declined 1.1% to HK$4.49. 

CATL dropped 0.2% to ¥199.05, and the company is preparing to invest about US$7.9 billion to build its manufacturing plant in Hungary and meet the demands of its customers in the European Union.