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[B]Yuan Gains Against The Dollar, China Stock Index Jumps Most In 2 Years[/B]
The Chinese yuan gained against the US dollar and the Euro while losing against the British pound in the overnight session as stock markets in Asia corrected from the credit debacle last week. Against the US dollar, the yuan gained to 7.5865 while declining to 15.079 against the British Pound. Notably boosting the underlying Chinese currency during the session was a buyback in shares listed on China stock indexes. Rising the most in 2 years, stocks in Shanghai rebounded from last week?s massive losses as bargain hunters and risk takers reentered the market. Leading gainers on the day were raw material producers including Baoshan Iron & Steel Co and Angang Steel Co. Both companies soared on the rebound, trading up to the 10 percent daily limit and boosting equities overall. As a result, the CSI 300 benchmark index rose 258.84 points to close at 4,885.43, up 5.6 percent for the day. Incidentally, the positive sentiment was also supported by a cut in the US Fed discount rate late last week, helping to boost momentum in not only Asia region stocks, but global stocks overall. The support helped gains to advance exponentially in the overnight session.
[B]China Allows Investment Abroad In Hong Kong On Trial Basis[/B]
As rumored last week, the Chinese government has allowed individuals to buy stocks on the Hong Kong exchange for the first time, helping to boost the Hang Seng Index in the overnight session. Under the program, investors with a Bank of China Ltd. account will be allowed to invest capital into markets abroad. However, the government did not cite any immediate restrictions on the amount invested. A significant step in opening up financial opportunities for a country known for its savers, the move comes in attempts to curb further appreciation in the underlying yuan. Here, capital flows out of the country will hopefully curb demand for the underlying currency, stemming the rapid appreciation that has taken place so far. Incidentally, the decision also follows the QDII program instituted last year where particular institutions and brokers were allowed to make hefty investments in markets abroad.
[B]Regional Stock Markets Get A Lift From Discount Rate Cut[/B]
Stocks vaulted higher in regional markets as both Hong Kong and Singapore equities received a short term boost on the heels of one of the world?s worst global equity routs. Singapore stocks advanced by the most in more that eight years as economic growth forecasts continue to remain optimistically supported of the city state economy. Banking sector stocks were particularly helped along by the sentiment with DBS Group Holdings leading gainers on the day. The country?s biggest bank saw shares rise 9.2 percent to S$21.30 after having lost nearly 7.8 percent in the last week?s debacle. As a result, the Straits Times Index gained 191.67 points or 6.1 percent to close higher at 3,322.38. Hong Kong?s Hang Seng index was also boosted higher, advancing the most in almost nine years. Incidentally, the Hong Kong market additionally advanced as the Chinese government allowed individual investment in outside markets, notably Hong Kong?s equity market. China Mobile contributed to the positive sentiment as the largest mobile phone operator in the world saw shares rise the most since October of 2001. As a result, the overall index ended up higher, adding a whopping 1,208.50 or 5.9 percent to close at 21,595.63 in the overnight session.
[B]Written by Richard Lee, Currency Strategist[/B]