- Need To Know:
“It’s been no surprise that the slump in the yuan this month has caused more than just a small ripple across the world’s financial markets. Despite the fact that yuan is only in the low single digits of global payments, its clout has grown considerably since the currency’s ‘internationalization’ over a decade ago. So much so, that its inclusion in the IMF’s Special Drawing Rights currency basket all but seems inevitable.”
“The PBOC’s decision to allow for more market-based determination of the yuan is taking us into new territory – one with more volatility but also of opportunities. And as the yuan moves towards a free float, investors will have to consider the consequences and risks accordingly. From structured products through to dim sum bonds, basic assumptions about the yuan, now a major moving variable, will need to be re-assessed and revaluated – and that’s very exciting.”
“As reverberations continue across the world’s currency markets, eyes will turn back towards China and how it can open its capital markets in a stable manner. It’s a tricky balance and one that the whole world should be watching closely.”
— Taran Khera, Bloomberg’s Head of Sales for Hong Kong, Taiwan and Korea
- Market Developments:
24/8 China’s Yuan Drop Amid Stock Selloff as Economic Concerns Mount [News]
20/8 IMF Board Sets September 2016 as Earliest Yuan Can Join SDR [News]
18/8 ‘Impossible Trinity’ Ends in China as PBOC Allows Freer Yuan [News]
13/8 So How Are All Those Yuan Structured Products Doing? [News]
13/8 Why China Devalued the Yuan [News]
17/8 Morgan Stanley’s Fragile Five Swells to Troubled 10 in Selloff [News]
11/8 China Rattles Markets with Yuan Devaluation [News]
To fuel a slowing economy and back rising political ambitions, China is promoting the use of the yuan throughout the world, a slow-moving process known as internationalization. It’s one of the biggest changes since the creation of the euro, a beckoning bonanza for bankers and traders — as well as a threat to China’s stability.
China surprised global markets on August 11, 2015 with its first major devaluation of the yuan since 1994. It pledged to give market forces a bigger role in determining the exchange rate, which is managed through a daily government-set fixing to the U.S dollar. It can trade 2 percent above or below that level each day inside China, with an offshore rate that tracks closely. While the government attracted criticism for many years for using the arrangement to limit gains and aid exporters, the situation has changed. Find out how online [Read More]
SOURCE: BLOOMBERG, PRICING VIA CHINA FOREIGN EXCHANGE TRADE SYSTEM
- From Bloomberg Analysts:
Tom Orlik and Fielding Chen (Economists): China’s central bank has signaled a new stage in the management of the yuan and opened the door to depreciation to support export competitiveness. The People’s Bank of China adjusted the yuan central parity — the daily fixing used to guide the market — down 1.9 percent on August 11, 2015, the largest drop on record. The central bank also said that, going forward, the central parity will closely reflect the market price.
A Big Move, But Yuan Is Still Strong
China’s record daily reference rate cut triggered the yuan’s biggest one-day loss since China unified official and market exchange rates in January 1994.
People’s Bank of China Strikes Back at Competitive Devaluation Claims
That marks a significant shift in policy, as the central bank ends its eight-month resistance to market pressure for yuan depreciation. The PBOC’s move reflects the depth of concern about China’s growth, which threatens to fall below the government’s 7 percent target for the year. Exports contracted 8.9 percent year on year in July as a 14 percent annual appreciation in the real effective exchange rate choked off demand.
The timing likely also reflects concern that as the Fed moves toward a first rate hike, a peg to a rising dollar would mean continued appreciation of the yuan against the currency of trade rivals.
Reviving flagging exports will require a significantly larger depreciation. To read more and to see additional charts, please click here.
Tim Craighead (Research Director): Companies in China and around the world surely heard the shot fired by the PBOC, as the yuan weakened a record 1.9% in one day vs. the dollar. A true yuan inflection, from sustained strength to gradual weakness, would impact revenue, costs, margins and competitive positions across industries and regions.
The most obvious upshots of a weakening yuan are improving competitive positions for Chinese exporters and harder times for international firms trying to sell into the mainland.
[Click for the full presentation]
Bloomberg Intelligence 12 Aug 2015: Trade-Weighted Yuan Long & Strong
Bloomberg Intelligence 12 Aug 2015: Global Firms With Notable China Sales
Bloomberg Intelligence 12 Aug 2015: China Firms with Big International Sales
Who Suffers When the Yuan Falls? A Market Analysis
Ten Currencies That May Follow Tenge in Tumble Triggered By China
- News At Bloomberg:
Bloomberg hosted a seminar in Sydney on July 15 to discuss how investors in Australia can better position themselves for a changing China. More than 70 executives attended the seminar and we polled them to see what they thought about the potential of the RMB.
- When is the RMB likely to become free floating?
- Which of the Following Would Have the Biggest Impact On Your Interest in Using RMB?
[Contact us for more polling results]
- Views In The News
Views on RMB Devaluation and its Regional Consequences – Click and listen from 9m 27s
Willie Pesek on RTHK Radio (Hong Kong)
- On The Radar:
– Launch of the Shenzhen-Hong Kong Stock Connect [News]
– China and Hong Kong begin cross-border sales of funds [Update: News]
– Inclusion of China’s mainland stocks to MSCI’s benchmark indexes [News]