PBoC Forced to Weaken Yuan After Overnight Selloff, China Stock Indexes Dive

Li Chen
21 Jun, 2024
Hong Kong

Market sentiment turned cautious in Friday's trading in Hong Kong and Shanghai as elevated trade tensions and the weakness in the yuan weighed. 

The CSI 300 and the Hang Seng indexes declined more than 0.8% and trimmed weekly gains to 1% as investors awaited more concrete steps from policymakers to revive economic growth. 

The People's Bank of China set the yuan at 7.1196 after the Chinese currency faced selling pressure in overnight trading on the rising capital outflow. 

The revised exchange rate was marginally weaker than Thursday's 7.1192 against the U.S. dollar. 

The central bank's move was widely anticipated by currency traders, as the currency has been under pressure for several weeks. 

China's policymakers have offered to provide broad support to the faltering stock market and residential property market, but measures announced so far have failed to change the course. 

Property prices and transactions continue to plunge in the second- and third-tier cities, and buyers are staying away because the market has still not found the bottom, despite the price decline over the last three years. 

Hong Kong stock market indexes are still struggling and trading down between 30% and 45% from their peaks in 2018, and Shanghai market indexes are down at least 40% from their peaks in 2021. 

Investors hoping for meaningful reforms are likely to be disappointed in the near future as Chinese central and local governments struggle with record-high debt. 

Investors have low hopes of any bold reform announcements at the much-delayed third plenum scheduled to take place next month. 

 

China Stock Movers 

The CSI 300 index fell 0.8% to 3,475.48, and the Hang Seng index decreased 1.9% to 17,999.35. 

Electric vehicle makers traded down after Canada announced its plans to impose additional tariff measures on Chinese-made electric passenger cars, mirroring the European Union and the U.S. 

Geely Automobile declined 2.3% to HK$8.94, LI Auto fell 2.2% to HK$69.65, and BYD dropped 0.4% to HK$236.60. 

Residential real estate developers continued to drift lower amid weak market demand and a lack of action from policymakers. 

China Vanke rose 1.4% to HK$4.97, China Resources Land dropped 1.1% to HK$26.95, and Longfor Group declined 1.3% to HK$11.24. 

SenseTime Group decreased 1.4% to HK$1.24 after the artificial intelligence-focused company announced its plan to raise $260 million through the sale of its shares at a 9.5% discount to finance its growth. 

Western Securities jumped 6.5% to ¥6.83 after the company said in a regulatory filing that it plans to acquire a majority stake in its privately held, smaller rival, Guorong Securities.

China's securities brokerage industry is rapidly consolidating under pressure from policymakers. A sharp decline in market activities and a ban on new listings for several months added more pressure to consolidate.

However, China's State Council is taking steps to nurture at least two local giants that could compete with global players with capital and a large customer base to provide underwriting and merger advisory services to larger firms.