Yuan Forwards Strengthen as Stock Rally Eases Fund Exit Concern

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China’s yuan forwards posted their biggest two-day gain in three weeks as capital outflows eased amid a stock-market rebound.

Overseas investors sold 2.4 billion yuan ($382 million) more Shanghai shares than they bought Friday via a link with Hong Kong, compared with a record 13.4 billion yuan on Monday. China’s benchmark Shanghai Composite Index extended a two-day gain to more than 10 percent on Friday, supported by a range of market-boosting measures from the government and trading halts on around half of all listed companies.

“Investors are no longer worried about serious capital outflows and yuan depreciation as the stock market stabilizes,” said Eddie Cheung, a foreign-exchange strategist at Standard Chartered Plc in Hong Kong. “The People’s Bank of China will keep the currency stable as policy makers don’t want it to be highly volatile while they cope with the fluctuating equity market.”

Twelve-month non-deliverable forwards on the yuan strengthened 0.10 percent to 6.2660 a dollar as of 4:40 p.m. in Hong Kong, data compiled by Bloomberg show. The contracts have advanced 0.21 percent in two days, the most since June 18. That pared their weekly decline to 0.27 percent.

The offshore yuan, which trades freely, was steady at 6.2159 a dollar, data compiled by Bloomberg show. It dropped 0.16 percent for the week. The onshore rate, which is constrained by a daily central bank fixing, was little changed at 6.2092 in Shanghai and fell 0.06 percent since July 3, according to China Foreign Exchange Trade System prices.

The PBOC set the yuan’s reference rate at 6.1153 a dollar, little changed from Thursday and a week earlier. The gap between the onshore spot rate and the fixing was 1.5 percent, within the 2 percent limit.

The central bank has been conducting “unrelenting” intervention in the foreign-exchange market and supplying ample dollars to satisfy onshore demand, Andy Ji, a Singapore-based strategist at Commonwealth Bank of Australia, wrote in a research note on Friday.

— With assistance by Tian Chen

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