(Bloomberg) -- The yuan strengthened and Chinese stocks pared some of their earlier losses after China said it would dispatch a delegation to the U.S. later this month, raising hopes that trade negotiations can resume after a two-month hiatus.
China’s currency jumped 0.50 percent to 6.9012 per dollar as of 11:54 a.m. local time, after sliding to its lowest since January 2017 late Wednesday. The offshore yuan, which neared its weakest on record overnight, rose for the first time in seven days, surging 0.72 percent as forward points spiked. In addition to the trade talks boosting the yuan, the People’s Bank of China set its daily reference rate stronger than expected.
Equities in Hong Kong and mainland China were more volatile, as the trade news was offset by a 5 percent slump in Tencent Holdings Ltd. after the Chinese technology company reported its first drop in profit in at least a decade. The Hang Seng Index fell 1.7 percent before bouncing back with a 0.3 percent gain. It then slid again and was last down 0.6 percent. The CSI 300 Index was down 0.6 percent as of the mid-day trading break on the mainland, after swinging from a loss of 1.8 percent to a gain of 0.7 percent.
“Some funds might be buying the dips after stocks dropped below key levels earlier, though I doubt any rebound amid a downturn would be strong enough to sustain,” said Linus Yip, a Hong Kong-based strategist at First Shanghai Securities Ltd. “Investors will likely remain cautious despite the latest sign that China and the U.S. will return to the negotiation table. There have been some twists and turns before and people expect more down the road on the trade issue.”
The yuan was the strongest currency in Asia on Thursday. Over the past three months, though, it has weakened about 8 percent against the dollar as the PBOC eased monetary policy to support a slowing economy and trade friction with the U.S. worsened. Policy makers have made it more expensive to short the yuan and urged banks to avoid “herd behavior” in the currency market.
“Relief on China-U.S. trade tensions cooled down expectations for further declines in the yuan toward 7 per dollar, and prompted some investors to trim their short yuan positions,” said Ken Cheung, a senior currency strategist at Mizuho Bank Ltd. “We maintain our view that policy makers will not let the yuan break 7 this year. The central bank will step up actions to stabilize sentiment if necessary.”
In Hong Kong, meanwhile, the city’s monetary authority again stepped in to buy up the local currency to defend its peg to the greenback. The de facto central bank bought HK$14.6 billion ($1.9 billion) of local dollars Wednesday, taking its spending on intervention this week to HK$16.8 billion. Prior to this weeks moves, the Hong Kong Monetary Authority hadn’t stepped in since May. The currency traded at 7.8495 per dollar.
More news, moves and commentary:
- China-U.S. to Resume Trade Talks After Tit-for-Tat Tariff Battle
- China’s Tumbling Equities Now Look Very Attractive, to Some
- China Says Trump’s ‘America First’ Policies Are Hurting U.S.
- Analysts Hold Firm on Tencent Buy Ratings After Profit Drop
- Tencent’s Shocking Profit Slippage Sends Shares Spiraling: Chart
Tommy Xie, economist at Oversea-Chinese Banking Corp. in Singapore:
- “The news that the Chinese vice commerce minister is visiting the U.S. gives investors some hope for positive developments in China-U.S. trade relations, which helps to boost sentiment on the yuan in the near term”
Francis Lun, Hong Kong-based chief executive officer of Geo Securities Ltd.
- “Markets were oversold and people started bottom fishing”
- “In China, if you look objectively all the factors are negative – the economy is very clearly slowing down. It’s a big reversal the people need to get used to”
- “Retail investors are coming in to buy up the market – you can tell from the smaller transactions. The rally may not be sustainable because the big funds may still be trying to sell”
Daniel So, CMB International Securities Ltd. strategist in Hong Kong:
- “Tencent’s disappointing results is the major reason dragging the markets down today”
- “ Results are still the focus of the market now”
Moves:
- Hang Seng China Enterprises Index falls 0.8 percent
- Shanghai Composite Index drops 0.9 percent, paring loss of 1.9 percent
- ChiNext gauge declines 1 percent
- Yield on 10-year Chinese government bonds falls one basis point to 3.58 percent
