China moves to support yuan as stock markets tumble: sources
CHINA’S major state-owned banks moved to support the yuan on Monday (Jan 22), tightening liquidity in the offshore foreign exchange market while actively selling US dollars onshore as equities slid, four sources with knowledge of the matter said.
The goal was to prevent the yuan from falling too fast as China’s A shares plunged, said one of the people, with the benchmark Shanghai Composite index posting its biggest one-day drop since April 2022 on Monday, down 2.7 per cent.
“It is a clear policy signal to stabilise the yuan and counter the negative market sentiment on equities,” said Gary Ng, senior economist for Asia-Pacific at Natixis.
Overseas funds have sold roughly US$1.6 billion in Chinese equities so far this year, with investor confidence bruised by signs of slowdown in the world’s second largest economy.
Offshore yuan tomorrow-next forwards jumped to a more than two-month high of 4.25 points late on Monday, reflecting signs of tighter liquidity conditions.
The rise come as state banks in the offshore market curtailed lending to their peers, one of the sources said.
GET BT IN YOUR INBOX DAILY
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The move effectively tightened up offshore yuan liquidity and raised the cost of shorting the currency.
Meanwhile, the state banks were also selling US dollars in the onshore spot foreign exchange market to prevent rapid yuan declines, three sources said.
Spot US dollar selling became aggressive to defend the 7.2 per US dollar level, one of them said.
All the sources spoke on condition of anonymity as they are not allowed to publicly discuss market conditions.
State banks often act on behalf of China’s central bank in the foreign exchange market, but they could also trade on their own behalf or execute clients’ orders.
The onshore yuan last traded at 7.1963 per US dollar, down nearly 1.4 per cent so far this year, while its offshore counterpart last fetched 7.2047. REUTERS
KEYWORDS IN THIS ARTICLE
BT is now on Telegram!
For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes
Capital Markets & Currencies
China property stocks gauge jumps on proposal for home purchases
ADDX launches fixed income marketplace and digitised bond programme
Asia: Markets track Wall Street records after US inflation data
Singapore shares advance after global indices hit all-time highs; STI up 0.5% at Thursday’s open
Stocks to watch: SIA, Seatrium, OUE Healthcare
Seatrium wins FPSO integration contract from SBM Offshore