Onshore, offshore yuan weaken to over 4-year low

China’s CSI 300 Index plunged 7.2 percent Thursday.

US lawmakers, meanwhile, were uncharacteristically silent about a further deterioration in the value of China’s currency, after the yuan fell for an eighth day on investor fears about China’s economy.

Stock markets in China, which is the world’s second-biggest economy and the leading global consumer of metals, were suspended for the rest of the day less than half an hour after opening as a new circuit-breaking mechanism was tripped for the second time this week.

The greenback slipped late yesterday from one-month highs against a basket of currencies as minutes of the Federal Reserve’s policy meeting in December suggested further US rate increases would be gradual because of concerns about persistently low inflation.

The overall level of dividends paid declined somewhat during the global financial crisis, after which many companies returned their focus to growing dividend payouts, a trend that remained as a dominant feature of equity markets through 2015.

In fixing the USA dollar/Chinese RMB rate at just 6.5646, the People’s Bank of China has clearly stated its willingness to establish a flexible exchange rate regime, moving away from its interventionist stance of just a few weeks ago.

Markets regained some stability after the offshore yuan erased early losses of up to 1 percent after suspected intervention by the authorities. That would in turn hurt emerging-market economies like Chile and Brazil that depend on China to buy the copper and oil that they export.

China, which is the world’s biggest commodity consumer, would see costs drop and boost its current account surplus, offsetting capital outflows and the depletion of its foreign exchange reserve.

It was the first time in nine sessions that the PBOC set a higher reference rate for the yuan, giving other regional currencies a breather.

China has recently accelerated the depreciation of the yuan, which some economists take as an indication that Beijing realises it can not continue to burn through its currency reserves. Overseas shipment in China fell 6.8 percent in November, compared with a 6.3 percent drop in Taiwan and a 4.8 percent decline in South Korea.

“We are sceptical we are near the end of that trade”.

Nevertheless, the softer-than-expected fixing in onshore trading led to speculation that the Chinese authorities are engineering a weaker yuan to support exports. Indeed, overreaction by financial markets to short-term negative news headlines oftentimes creates attractive investment opportunities for disciplined long-term investors.