Yuan's Devaluation Brings Losses for Some

Yuan's Devaluation Brings Losses for Some

China stocks in meltdown as Asian markets spooked
This is neither fair nor reasonable.

China's currency operates under a managed floating exchange rate regime.

The central bank said the yuan move was a technical one and part of its currency reform process, but many investors fear the currency will be allowed to depreciate further amid political pressure to shore up flagging exports, potentially triggering a global currency war. Fortunately, the changes to China's exchange-rate regime do not seem almost big enough to set such a vicious cycle in motion. The steady flow of upbeat economic reports has bolstered views that the Federal Reserve will raise interest rates in September. It is not possible to keep the yuan as strong as ever if the exchange rate mechanism is observed. "This in turn has implications for commodity producers and emerging market currencies".

The MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4 percent, hitting its lowest level since August 2013, while Japan's Nikkei dipped 0.2 percent.

By the end of the day, the yuan ended flat.

The dollar index against a basket of currencies held firm after three days of gains to stand at 96.953.

China's demand for Angolan oil, Zambian copper and South African gold has fueled a steep increase in trade, helping fuel rapid growth but leaving economies exposed to policy shifts in Beijing, according to the Wall Street Journal. People don't want their money in yuan if its value is dropping. The Dubai index for instance fell by 3.35% at the same time estimates showed that total value of UAE stocks dropped by about 18 billion dirhams - around four million euros.

"All the news out of China recently has done nothing to restore confidence in its financial markets", said David Madden, market analyst at IG, "and the ripple effect can be felt in Europe". It is a decision which should have been taken a bit earlier. They can bring both advantages and disadvantages to an economy.

The rising dollar has hurt U.S. exporters by making their goods more expensive overseas.

But it may also dent imports and cut corporate profit margins, a scenario which does not bode well for future development. This meant that its open market operations this week injected a net 150 billion yuan. But the city may also become less attractive to mainland tourists. Paramount amongst this will be to make their exports cheaper on the worldwide market.

IMF's comment on Wednesday was worthy of note.

The indexes had slumped more than 5 percent at one point in morning trade, after plunging 6 percent on Tuesday following comments by China's securities regulator that the market has normalised and the government would allow market forces to play a bigger role in determining stock prices.

In Hong Kong, where investors are not subject to strict capital controls, the spread between the interbank rate for offshore yuan, or CNH Hibor, and Shibor has widened to 70 per cent. CNH Hibor hit 4.34 per cent yesterday, its highest point since February.