- China Raises FX Reserve Levels For Domestic Lenders
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[B]Chinese Yuan Trades At Record Against The US Dollar, Breaks 7.7000 [/B]
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[B]Asia[/B][B]n Stocks Under Pressure[/B]
- China?s Central Bank Raises FX Reserve Requirements For Lenders
In attempts to curb further liquidity in the economy, the People?s Bank of China today increased foreign currency reserve requirements by 25 percent. Increasing the previous 4 percent requirement to 5, domestic lenders will have to keep more foreign currency deposits on hand, reducing money supply by about $1.7 billion. Ultimately, the decision will restrict the lending and investment capability of the already vast amount of currency deposits, recently estimated at $165 billion. A relatively big announcement, the decision has already been expected by the market for some time now, issued shortly after the last rate increase all but a couple of weeks ago. Now, with this round of tightening already in effect, policy makers are looking to further possibilities should the current regime become ineffective.
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[B]Yuan Trades At Level Not Seen Since 2005[/B]
Speculation mounted on the idea that the Chinese central bank may allow further appreciation of the underlying currency in order to curb overheating in the economy. The notion helped to boost the Chinese yuan to a record level, one not observed since the 2005 initial revaluation. Breaking through in the overnight, the yuan traded as high as 7.6960 against the US dollar according to the China Foreign Exchange Trade System. Incidentally, the central bank has now allowed the currency to appreciate by 7.5 percent since the end of the fixed exchange rate in July 2005, above the 7.7000 figure. The move now sets up an imminent test of the 7.5000 level, where a lot of focus is targeting a potential breakdown in the currency pair. Subsequently, the overnight?s advance, should momentum remain, will add to policy makers? favor when attending meetings in Washington with US Treasury Secretary Henry Paulson later this month.
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[B]For Second Day, Singapore Stocks Remain Lower[/B]
Singapore stocks suffered on the day following worse than expected earnings from the region?s second largest lender. Falling the most in almost three years, United Overseas Bank Ltd. stock tumbled 3.1 percent to S$22.20 as first quarter profit was less than consensus estimates. Increasing by 18 percent to S$518 million, the report was mostly attributed to income from fees and commissions and loans made to customers throughout the three month period. However, with consensus estimates expecting S$536 million for the first quarter, the stock tumbled on a miss by company officials. Subsequently, other sector stocks tumbled, notably DBS Group Holdings. Slipping for the first time in five days, profit taking and overextended sentiment helped in closing company shares down 0.4 percent at S$23.40. As a result, the Straits Times Index fell 38.38 points to 3,439.21 in the overnight session.
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[B]Hang Seng Backs Down, Shanghai Makes Record Close[/B]
Hong Kong markets didn?t fare any better, with Shanghai making gains that bucked regional markets. Hong Kong stocks dropped on profit taking as the benchmark equity market touched on an all time high yesterday. Seeing that gains may be overextended investors pared back on positioning, leaving the Hang Seng down by 190.29 points, closing at 20,706.35. Leading losers were developer stocks, with notable declines in Cheung Kong. The company?s stock slipped 2.8 percent to HK$106. China?s stocks were a different story as the CSI 300 Index rose 127.32 points to close at a record 3,686.03. Attributed to the overall optimism were reports that brokerage account opening surged in recent days, with some 1.48 million opened in the week ended April 27th.