Hong Kong: Chinese stocks rally most in a month on weaker yuan

[HONG KONG] Chinese stocks trading in Hong Kong rallied the most in a month after the government cut the yuan reference rate by a record amid signs the economic slowdown is deepening.

The Hang Seng China Enterprises Index in Hong Kong climbed for a third day, adding 1.6 per cent to 11,468.27 at 9.48 am local time. Jiangxi Copper and China Railway Group surged more than two per cent to lead gains for material and industrial companies. China Southern Airlines slid nine per cent to pace declines for carriers on concern a weaker yuan will boost the cost of servicing dollar-denominated debt.

China lowered the yuan's daily reference rate by 1.9 per cent amid a slew of recent economic data showing a deepening slowdown. The nation's broadest measure of new credit missed economists' forecasts last month, according to data released on Tuesday, while weekend reports showed exports dropped more than expected and producer prices fell to the lowest since 2009.

"The yuan's weakness helps with exporters and improves the economic outlook as well," said Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong. "The currency will depreciate in short term, reflecting weakness in internal economic momentum." The Shanghai Composite Index rose 0.1 per cent, adding to Monday's 4.9 per cent jump. The CSI 300 Index climbed 0.1 per cent, led by consumer companies most reliant on discretionary spending. The Hang Seng Index in Hong Kong advanced 1.3 per cent.

The currency dropped an unprecedented 1.2 per cent to 6.2848 per dollar as of 9.43 am in Shanghai, and slid a similar amount in Hong Kong's offshore trading. The onshore spot rate was 0.9 per cent weaker than the reference rate of 6.2298, within the teo per cent limit allowed by the People's Bank of China.

The move comes after the PBOC said earlier Tuesday that a strong yuan puts pressure on exports. China's overseas shipments fell 8.3 per cent from a year earlier in dollar terms in July, well below the estimate for a 1.5 per cent decline in a Bloomberg survey. The yuan has appreciated 13 per cent over the past three years against the dollar, the most among major currencies, according to data compiled by Bloomberg.

"The central bank has some intention to boost exports through the devaluation of the yuan as the recent exports data don't look very good," said Wu Kan, a Shanghai-based fund manager at JK Life Insurance, who is adding to shares. "The market seems to interpret the news as positive, believing the move will boost economic growth."

BLOOMBERG