Asian currencies gain as yuan drop eases; won rises with Tencent

[HONG KONG] Asian currencies stabilised after a two-day selloff and the yuan's tumble eased as China's central bank said it wants a stable, strong currency in the long term. Emerging-market stocks rose as record earnings at Tencent Holdings boosted technology companies.

The South Korean won jumped 1.54 per cent and Malaysia's ringgit rallied from a 17-year low at 11.14 am in Hong Kong. The yuan slipped 0.3 per cent to 6.4066 per dollar as China weakened its reference rate for a third day. The Bloomberg JPMorgan Asia Dollar Index was little changed after its biggest two-day selloff since 2011. The MSCI Emerging Markets Index added 0.4 per cent, while US equity-index futures were steady.

China's decision on Tuesday to devalue the yuan and allow the currency to trade more in line with market movements roiled global assets, sending emerging-market currencies and commodities tumbling. The move has stalled the dollar's advance and boosted the appeal of sovereign bonds amid speculation the deflationary impact may give the Federal Reserve pause as it considers the timing of its first interest-rate increase since 2006.

"It's been an overreaction," said Sean Darby, Jefferies Group's chief global equity strategist. "This has been on the agenda for some time. The move is probably a very good adjustment for China in the longer term." The People's Bank of China reduced the level around which the yuan can trade by 1.1 per cent to 6.401 per dollar on Thursday, taking its three-day devaluation to 4.7 per cent. The fixing was slightly weaker than Wednesday's onshore closing price, the second day in a row the rate had been set in such a manner.

The PBOC said on Tuesday it wants market makers who submit contributing prices to consider the previous day's close, foreign-exchange demand and supply, as well as changes in major currency rates.

The won strengthened to 1,174.60 per dollar after the Bank of Korea held rates, cooling speculation that China's policy shift would spark a round of devaluations around the region. The ringgit advanced 0.9 per cent to 3.9928 after weakening on Wednesday beyond 4 per dollar for the first time since the Asian financial crisis.

Aussie, Kiwi Singapore's dollar climbed 0.4 per cent after slumping to its biggest two-day loss since 2011. The Australian and New Zealand currencies were little changed, arresting declines driven by concern a weaker Chinese yuan would reduce demand for raw-materials exports. The euro and yen weakened 0.2 per cent after rallying against the dollar.

Tencent jumped 4.2 per cent in Hong Kong, driving a gauge of technology shares to the biggest gain among the 10 groups on the emerging-market stock index. Surging ad revenue was behind a 25 per cent increase in net income that beat analyst estimates.

The Hang Seng Index and a gauge of Chinese companies listed in the city both erased gains as the PBOC said it would limit interventions to times when the market is "distorted." The Shanghai Composite Index swung to a 0.7 per cent loss.

A managed floating exchange rate regime is suitable for China and the central bank has already exited regular intervention, PBOC Deputy Governor Yi Gang said at a briefing in Beijing. Authorities in China sold dollars via state-owned banks to support the yuan on Wednesday and told banks to limit some firms' purchases of the greenback, people familiar with the matter said.

BLOOMBERG