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Hong Kong - China’s stocks rose for the first time in three days as declines for the yuan eased after the central bank signaled support for the currency.
The Shanghai Composite Index climbed 1.5% to 3 944.39 at 08:35, erasing a loss of as much as 1.2%.
Technology and consumer companies led gains. The onshore yuan weakened 0.5%, after a two-day loss of 2.8%, while the freely traded offshore yuan rebounded 1.1%.
There’s no basis for depreciation to persist and the central bank is capable of keeping the currency at an equilibrium level, PBOC Assistant Governor Zhang Xiaohui said Thursday at a briefing in Beijing.
“We felt it’s been an overreaction,” said Sean Darby, Jefferies Group Inc.’s chief global equity strategist in Hong Kong.
“I’m sure that people have been disconcerted by the fact that the PBOC decided to surprise the market by letting the exchange rate drop. This has been on the agenda for some time. The move is probably a very good adjustment for China in the longer term.”
The world’s second-biggest economy roiled markets this week by depreciating its currency by the most in two decades. An extended slide risks triggering a series of competitive devaluations and threatens a global deflation shock as prices of exports and commodities fall.
The Hang Seng China Enterprises Index in Hong Kong gained 0.6%, while the Hang Seng Index added 0.7%. The CSI 300 Index rose 1.2%. Trading volumes in Shanghai were 20% below the 30-day average.
PBOC briefing
The PBOC will promote a consistent onshore, offshore yuan exchange rate, it said in a statement delivered ahead of the press briefing. The central bank will act “when the market’s volatility is excessive, when the market begins behaving like a herd of sheep,” Deputy Governor Yi Gang said.
The comments were made after the fixing rate of the yuan dropped 1.1% to 6.401 per dollar today, after slides of 1.6% and 1.9% in the past two days.
Tuesday’s shift saw the PBOC apply a new methodology to determine the fixing: market makers who submit contributing prices have to consider the previous day’s close, foreign-exchange demand and supply, and changes in major currency rates.
The Shanghai Composite has fallen 25% since the June peak amid concern the nation’s economic slowdown is deepening. Data this month showed producer prices slid in July to the lowest level since 2009 and overseas shipments dropped more than expected. Industrial production and retail sales also missed forecasts last month, according to a report on Wednesday.
Investors should prepare for more surprises out of China after the yuan’s devaluation became the country’s latest unexpected policy move to roil global markets, according to Fraser Howie, co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”
Chinese policy decisions are becoming “erratic” as authorities struggle to combat the nation’s deepest economic slowdown in more than two decades, he said.
