Yuan Declines as China Sentiment Takes a Hit From Export Plunge

The offshore yuan declined the most this month as sentiment on Chinese assets dipped after the nation reported a...

The offshore yuan declined the most this month as sentiment on Chinese assets dipped after the nation reported a worsening of exports and an almost halving of its trade surplus.

Local stocks broke their longest winning run in eight months and Asian currencies slipped for a third day after China said on Tuesday that overseas shipments fell 25 percent in February, spurring concern that global demand is ebbing. The nation could be in for anemic growth similar to Japan’s during the 1990s unless it weakens the yuan, according to KKR & Co., one of the world’s largest private equity firms.

The yuan traded in Hong Kong fell 0.13 percent, the most since Feb. 26, to 6.5168 a dollar as of 10:12 a.m. local time, according to prices compiled by Bloomberg. The onshore rate retreated 0.16 percent to 6.5147, according to China Foreign Exchange Trade System prices. The central bank weakened its reference rate by 0.10 percent to 6.5106. The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, strengthened overnight.

“We’re seeing a delayed reaction to yesterday’s trade data, which happens from time to time, as well as dollar strength against emerging-market currencies,” said Khoon Goh, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The export data are serving as a reminder of the deterioration of the economy.”

KKR, BlackRock

China’s currency interventions have drained cash from the financial system, tightening liquidity further at a time when money is already leaving the country, Henry Mcvey, head of KKR’s Global Macro & Asset Allocation team, said in a research note. BlackRock Inc.’s chief investment officer of global fixed income, Rick Rieder, said the nation will avoid a major currency devaluation through capital controls and policy measures that will stimulate growth. The idea of a 30 percent lowering is “not happening,” he said at a conference in New York.

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Imports extended a streak of declines to 16 months in February, dropping 13.8 percent and leaving a trade surplus of $32.6 billion. The excess was a record $63.3 billion in January. The trade figures were heavily distorted by the Lunar New Year holidays and make year-on-year comparisons somewhat meaningless, Michael Shaoul, chief executive officer of Marketfield Asset Management LLC in New York, wrote in an e-mailed note.

“Overall the data suggest that the export sector is still struggling to produce any meaningful growth, but does not indicate a meaningful deterioration in the critical sector,” he said.

In money markets, the seven-day repurchase rate, a gauge of interbank funding availability, fell two basis points to 2.26 percent. Government bonds advanced, with the 10-year yield declining one basis point to 2.93 percent, National Interbank Funding Center prices show. The Shanghai Composite Index of equities slumped 2.4 percent.

–With assistance from Ye Xie Katia Porzecanski and Helen Sun To contact the reporter on this story: Saijel Kishan in Hong Kong at skishan@bloomberg.net. To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Robin Ganguly, Allen Wan

By: Saijel Kishan

©2016 Bloomberg News

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