China stocks and renminbi decline as anxiety persists

The Chinese renminbi suffered its worst intraday drop in early trading on Tuesday before the central bank appeared to intervene to stabilize the market, while equities lost ground despite the authorities' efforts to quell worries.

It was down 0.8 percent against the US dollar in early trade – of course for its worst day – but by mid-day had reduced losses to 0.5 percent, a move that traders attributed to the state banks heavily buying the renminbi. The 3.3% decline in the Chinese currency in June was its worst month in history

Market participants said that expectations of a declining trade surplus were helping to drive down the renminbi

"Maybe they go ahead?, but no matter how this will be resolved, China's trade surplus will decline," said a foreign currency trader in a bank Chinese in Shanghai. "The onshore customers buy dollars in bulk, and the wickets of banks in the offshore market are all short of renminbi."

But market participants have noted that unlike its declines earlier this year, the renminbi has fallen in recent weeks. the US dollar, but also against the broader currency basket that the central bank says to be its main benchmark.

"The weakening of the renminbi against the backdrop of the appreciation of the US dollar is less of a valid argument over the past two weeks, since the weighted trade basket has also weakened significantly", said Tai Hui, Asia-Pacific stock market strategist at JP Morgan Asset Management in Hong Kong. "This reflects the narrowing of the spreads between the US dollar and the renminbi interest rates," he said, noting that the recent monetary easing in China has exacerbated the downward pressure. Chinese foreign exchange regulator Pan Gongsheng, who is also vice-governor of the central bank, told a forum in Hong Kong on Tuesday that China was "confident that the renminbi will be kept at a reasonable and balanced level."

On the stock market, the CSI 300 index, which follows the significant shares traded in Shanghai and Shenzhen, lost 1.9% at noon after falling 2.9% on Monday , placing the index at the bottom Analysts said investors were worried about the impact of a trade war adding to the downward pressure of a slowdown in the US market. national economy.

In Hong Kong, the Hang Seng China Enterprises index, which tracks the mainland companies listed in the city, lost 1.9 percent to its lowest level since last August.

Chinese authorities attempted to stabilize market sentiment Tuesday, state media urging investors to avoid the panic selling of stocks and currencies. The Securities Daily newspaper said in a comment that the stock market declines were an "irrational overreaction".

But some analysts said the market still has room to go down.

"In the midst of calls for" bottom fishing ", the Chinese market has been violating its upward trend since its lowest level in mid-2014," Hao Hong, research director of Bocom International in Hong Kong, writes Tuesday. Kong. "With more restrictions on the purchase of property to curb the housing bubble and liquidity … entrenched, it's hard to agree with the consensus that the market has come to its bottom eventual. "

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