Will China Widen The Trading Band?

- Will China Widen The Trading Band?

  • [B]Stock Drop In HK, Citic Surges  Ahead[/B]

  • [B]Developers Lead Losses On Straits  Times Index[/B]

Surprisingly, senior economist Zhao Jinping recommended that Chinese officials heavily consider a widened trade band on theyuan, in order to effectively protect the economy from overheating. Speaking at a financial conference inBeijing, China, Zhao noted that the “moves of the currencies in the basket have offset each other, so the impact on exports is limited.” As a result, “China should broaden the yuan’s trading band…to help ease the imbalance in the foreign trade structure”. With an appreciated currency increasing prices on exports, global competitors would regain competitiveness in trade. On the other hand, a rising yuan would also mitigate the effects of inflation, currently running at a 3.3 percent clip as raw commodities become cheaper. Outlier effects would also be minimized according to Zhao as “the future trend of other international currencies is likely to offset the pressure of the yuan’s appreciation”. Notably, however, and seemingly in line with multiple releases by policy officials, Zhao stated that new policies should go into effect at “an appropriate time”. Nonetheless, currency strength was still witnessed as the spot yuan traded as high as 7.7150 in the overnight, currently trading at 7.7260.

Stocks in Hong Kong dropped, bringing the weekly performance into negative territory for the first time in a more than a month. Leading decliners on the day were shares of China Mobile Ltd. The telecom stock was ill effected by speculation hovering over the possibility that the People’s Bank of China will begin to implement stricter monetary policies in light of rising inflationary pressures during the Golden Week holiday. Shares of China Mobile, the world’s largest mobile phone operator by users, fell 1 percent to close at HK$72.20. Equity shares were also under pressure after it was rumored that China’s state pension fund was paring back on equity positions in light of the sustained run up in stocks. As a result, the Hang Seng Index slipped 140.79 points to 20,526.50 at the close in the overnight session. The outflows in stocks helped to pressure the Hong Kong dollar lower, as the currency pair remained relatively near the close yesterday in New York. Currently, the USDHKD is trading at 7.8218.

Singapore equity markets fell on the day, led by exporters and developers. Notably, shares in City Developments Ltd. and Neptune Orient Lines fell from record valuations as investor concerns over recent advances added to downward profit taking. City Development shares fell 40 cents to S$16.10, after closing at a record high in yesterday’s session. Neptune Orient Lines stock dipped 2.1 percent to close at S$3.72. In this year alone, shares in Asia’s fourth largest shipping company have risen 78 percent. Evidence of widespread profit taking were viewed in shares of Keppel Corp. The company’s stock fell 10 cents to S$21.60 after rising 3.8 percent yesterday on first quarter profit that rose 48 percent. Ultimately, the Straits Times index lost 8.29 points to end the session at 3,398.60 at the close.

Data scheduled for next week is thin, but heavy. Notably, market players will be focusing in on the Brunswick manufacturing survey for the month in Hong Kong to improve from the previous 53.4. A stronger figure would help to counter weaker dollar data, lending to notions of solid growth in the coming year for the Asian economy. In Singapore, money supply figures will be considered. However, taking overall focus will be the unemployment rate. Expectations run high for a 2.6% or better rate, suggestive that economic expansion will remain healthy in the near term. However, further weakness in the underlying spot may emerge should the report results go the way of recent economic data, with notable declines in manufacturing.