Yuan Fixation, Stock Bourse Bickering: A Week in China's Markets

(Bloomberg) -- China’s currency was back in the spotlight, stocks ended a bad streak on a high, and exchanges across the border with Hong Kong pledged to eventually work out their differences. Here’s a roundup of what we’ve been talking about in China markets this week.

Yuan hits 6.8

The yuan fell fast, and then it stabilized. Currency experts have a few theories on the decline: 1. The People’s Bank of China is in easing mode when the world’s most powerful central banks are cutting stimulus, so a weaker currency is a natural consequence. 2. China wants the yuan to depreciate, using the best tool it has to fight a trade war without the combative headlines.

Either way, it seems officials are comfortable with weakness. Though traders saw a big bank selling dollars on Friday, there’s been no verbal intervention this week, and the PBOC has been allowing the daily fixing to weaken in lockstep with market moves. Donald Trump’s not impressed, telling CNBC that the currency is “dropping like a rock” and putting America at a disadvantage.

Higher troughs

The bad news is that the Shanghai Composite Index fell again this week. The good news is that it ended on a high, jumping Friday for the first time in six sessions, as traders talked up a local media report that looser asset management rules are on the way.

For bond investors, it was the reverse. Things were going great -- China’s benchmark 10-year yield fell as low as 3.43 percent, a level we hadn’t seen in more than a year -- before yields spiked back up on Friday. Still, slumping commodity prices have pushed inflation concerns aside, and cash is likely to remain ample. On the corporate side, investors snapped up Chinese dollar junk bonds amid signs the central bank wants to provide more liquidity to smaller firms.

Exchanges disconnect

Stock exchanges are bickering across the border. Bourses in Shanghai and Shenzhen said mainland investors aren’t ready to trade the complex stuff that Hong Kong wants to add to the trading link, like shares with unequal voting rights or stapled securities (who even knows what those are). Hong Kong Exchanges & Clearing Ltd.’s Charles Li got some kind of compromise after he rushed to Beijing to patch things up, saying all parties had agreed to work together to fix their differences. Perhaps tellingly, the Shanghai Stock Exchange had no comment about the meeting.

As Hong Kong’s first dual-class listing, Xiaomi Corp. unwittingly found itself at the center of the spat.

Hong Kong fades

Almost everyone’s off on vacation: average daily turnover in the Hang Seng Index was the lowest in more than a year this week. But analysts still found something to do. We counted another six who cut their price targets on Tencent Holdings Ltd., taking July’s tally to 12 so far. Asia’s biggest stock set a new intraday low for 2018.

Sunny Optical Technology Group Co., one of 2017’s stock darlings, had its worst week since 2015. But fear not! If Sunny’s smartphone cameras aren’t your thing, Hong Kong is about to welcome a $35 billion state-backed giant which owns the world’s largest collection of telecom towers. It doesn’t get more exciting than that.

Chart of the week

This week’s pick shows how we may no longer be able to say China has the world’s second-largest equity market. (Yes, we’ve been watching this particularly closely).

Catching up

Here’s what else caught our eye.

• The Mooch wants a slice of China’s hedge funds.
• China recorded one of its worst corporate-debt defaults yet.
• More companies are pledging to buy back their shares.
• Limit down: HNA Group Co.’s units resume trading.
• Some management changes ahead of a chemicals mega-merger.
• A bunch of China’s online lenders are going bankrupt.
• The world’s biggest jewelry maker is slashing prices in China.

To contact the reporter on this story: Sofia Horta e Costa in Hong Kong at shortaecosta@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, David Watkins

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