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Agencies and staff reporter
The yuan rebounded more than 800 basis points at one stage in a spectacular push yesterday after Chinese authorities issued a strong warning to speculators and reportedly slapped restrictions on bulk US dollar purchases.
The onshore yuan gave up some of the gains to close below 7.30 against the US dollar.
The yuan’s rally yesterday also helped drive mainland stocks up and narrow Hong Kong stock losses.
The dramatic turn came as companies planning to purchase US$50 million (HK$390 million) or more now need to secure approval from the People’s Bank of China which met with some commercial banks on the matter over the weekend, sources said.
“The approval process will be extended,” said one source.
The PBOC said in a statement pledging to act to correct one-sided movement in the market whenever needed and expressed confidence in keeping the yuan basically stable.
The central bank’s warning came a few hours after policymakers set the daily fixing stronger than expected and by a record margin while state-owned lenders actively sold US dollars, according to traders.
The onshore yuan eventually rebounded 500 basis points higher to close at 7.2906 against the US dollar yesterday.
The yuan plunged to a 16-year low of 7.3415 per US dollar last Friday after it was weighed by the country’s increasingly gloomy economic outlook and interest-rate divergence with the US.
“We could soon confirm a stabilization of China’s growth that will lend strong support to the yuan,” said Becky Liu, head of China macro strategy at Standard Chartered.
The yuan had been subject to heavy short positioning and ultra bearish consensus sentiment.
Wang Ju, head of Greater China FX & rates strategy at BNP Paribas, said joint intervention from Asian central banks would be needed to cap US dollar’s strength.
The head of the Bank of Japan also hinted at the possibility of a policy shift.
Zhi Xiaojia, head of research at Credit Agricole CIB, saw the timing of PBOC’s statement as perfect to deliver the most effective results. It came right after the US dollar weakened on hawkish comments from Japan’s central bank head and before China reporting strong credit growth, Zhi added.
China extended 1.36 trillion yuan (HK$1.48 trillion) in new yuan loans in August, up sharply from July and beating analyst expectations.
Yuan’s rally was accompanied by a 0.84 percent gain in the Shanghai Composite Index. Hong Kong’s benchmark Hang Seng Index also pared its losses to close 0.6 percent lower at 18,096 points.
Many strategists are of the view that the central bank aims to slow yuan’s depreciation rather than doing anything too drastically to reverse the weakening trend.
Themis Qi
Shares of Alibaba (9988) lost 3 percent yesterday after the e-commerce and tech giant suddenly announced that Daniel Zhang Yong has been replaced by Eddie Wu Yongming as chief executive and chair of the cloud unit.
It follows Joseph Tsai becoming Alibaba Group’s new chairman.
Wu has served as chief executive of the group, but Zhang’s unexpected exit from Alibaba Cloud means he has basically left the core leadership of the group.
Wu has also served as technology director at Alibaba since its inception in 1999 and has been the chief tech officer for both Alipay and Taobao.
The changes come when the cloud unit is working on an initial public offering as part of Alibaba’s six-way reorganization plan.
In a letter to staff, Alibaba said the spin-off of the cloud unit will continue under the leadership of the new chief executive, which was scheduled to be completed before May 2024.
Zhang, who joined Alibaba 16 years ago, was appointed to be the group’s chief executive in 2015 and took over from Jack Ma Yun as chairman in 2019. And after Ma returned to the mainland this year Zhang announced the group’s reorganization plan.
Then, in June, Zhang said he would resign from the group and focus on managing Alibaba Cloud.
Although no reason for Zhang’s abrupt departure were disclosed, Alibaba will invest US$1 billion (HK$7.8 billion) to support a tech fund set up by Zhang to assist the group in improving its tech portfolio for future development, according to the letter.
While Morningstar kept its forecast and value estimates for Alibaba, the agency believes its share price will be under pressure in the short term as the top personnel changes might delay spin-off plans for subsidiaries.
The 3 percent dip in Alibaba’s share price put it at HK$88.