Chinese stocks rebound in late day gains

The People’s Bank of China (PBOC) set a slightly weaker mid-point rate for the yuan on Friday, but the fix has been broadly steady for more than a week, signalling a determination to hold the line against expectations of sustained depreciation.

Having been alarmed by a near five per cent slide in the yuan since August, investors globally appeared relieved by the stabilisation.

FRAYED NERVES: Oil prices at 12-year lows and the volatile start to 2016 in China’s stock and currency markets have unleashed a torrent of negativity among investors. Trade by the world’s second biggest economy grew in December for the first time since June, RT reports. The spot rate is allowed to deviate 2 percent either side of the daily fix.

The spot market was changing hands at 6.5871 in afternoon trade, 19 pips firmer than the close.

Traders said yuan liquidity offshore had been very tight earlier in the week thanks to buying by state-backed banks, acting at the central bank’s behest, which pushed overnight borrowing rates in Hong Kong to record highs, making it prohibitivly expensive to bet against the yuan.

“The key for the spot rate’s move is the central bank’s attitude”, said a dealer at an Asian bank in Shanghai. “But the exchange rate will remain stable in the near term as investors are cautious now due to the PBOC’s intervention this week”. This year will provide another test of managers’ ability to handle volatility, with at least two China-focused funds posting large declines during a tumultuous start to 2016. On a year-on-year basis, orders rose 1.2%.

The Shanghai Composite Index sank 3.5 percent to 2,900.97, falling 21 percent from its December high and sinking below its closing low during a $5 trillion rout in August.

The indexes have now lost around 16 per cent so far in 2016.

Perceived mis-steps by the authorities and the wild swings on the forex and equities market had stoked concerns that Beijing might be losing its grip on economic policy, just as the country looks set to post its slowest growth in 25 years. A Reuters poll of economists forecast growth slipping to 6.8 per cent from 6.9 per cent in the third quarter.

China’s yuan gained in early trade on Friday, while shares opened a tad lower, as fears of a market meltdown faded thanks to central bank action to bolster the currency during the week and trade data showed the economy may not be as weak as feared.

Asia Pacific stock markets have suffered another punishing day after continued falls in the price of oil and poor Chinese bank lending figures undermined confidence.

“Nevertheless, we still expect growth to resume a downtrend later in the year, given ongoing structural headwinds”, it added.

Nomura said the data offered a sign of the economy stabilising, albeit at a low level.