Chinese stocks trading in Hong Kong fell after the central bank devalued the yuan by the most in two decades and a broad gauge of credit slumped.
The Hang Seng China Enterprises Index in Hong Kong slipped 0.2 percent to 11,264.64 at the close, erasing a gain of as much as 2.6 percent. Air China Ltd. and China Southern Airlines Co. slumped at least 13 percent to lead declines for carriers on concern a weaker yuan will boost the cost of servicing their dollar-denominated debt.
China lowered the yuan’s daily reference rate by 1.9 percent amid a recent slew of data showing decelerating growth for the world’s second-biggest economy. The nation’s broadest measure of new credit missed economists’ forecasts last month, according to data released on Tuesday, while weekend reports showed exports dropped more than expected and producer prices fell to the lowest level since 2009.
“The market is spooked by concern that the yuan may enter a devaluation trend and there’s some pressure for capital outflows given the fact that the U.S. may raise interest rates soon,” said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. “The credit data show the economy is still in the doldrums.”
The Shanghai Composite Index slipped less than 0.1 percent at the close, halting a two-day, 7.3 percent rally. The CSI 300 Index slid 0.4 percent. The Hang Seng Index in Hong Kong fell 0.1 percent.
The Chinese currency dropped 1.8 percent to 6.3210 per dollar as of 3:35 p.m. in Shanghai, the biggest one-day loss since the government unified official and market exchange rates in 1994. It slid 2.2 percent in Hong Kong’s offshore trading.
The move comes after the PBOC said earlier Tuesday that a strong yuan puts pressure on exports. China’s overseas shipments fell 8.3 percent from a year earlier in dollar terms in July, well below the estimate for a 1.5 percent decline in a Bloomberg survey. The yuan has appreciated 13 percent over the past three years against the dollar, the most among major currencies, according to data compiled by Bloomberg.
In the U.S., the Federal Reserve is assessing the strength of the U.S. recovery from an early year slowdown as policy makers debate whether the world’s largest economy can withstand the first rate rise since 2006. Traders were pricing in a 54 percent probability of the first increase next month.
In Hong Kong, China Southern plunged 18 percent. Every 1 percent drop in the yuan cuts 767 million yuan ($122 million) from annual profit, according to the carrier’s analysis in its 2014 financial report. At the end of 2014, 93.3 percent of China Southern’s debt was in dollars, compared with 97.2 percent for China Eastern Airlines Corp. and 72.8 percent for Air China, according to their annual reports.
“By sectors, airlines are losers from the currency’s weakness because of a lot of foreign debt,” said Wenjie Lu, a Shanghai-based strategist at UBS Group AG.
Financial and drug companies led declines in mainland trading, with Jiangsu Hengrui Medicine Co. losing 2.9 percent and China Life Insurance co. retreating 1.7 percent. Suning Commerce Group Ltd. jumped 10 percent after Alibaba Group Holding Ltd. said it will spend 28.3 billion yuan for a 19.9 percent stake in the electronics retailer.
Aggregate financing slumped to 718.8 billion yuan in July, from 1.86 trillion originally reported for June, according to the PBOC. That missed the median estimate for 1 trillion yuan in a Bloomberg survey. Recent data showed a private gauge of manufacturing sank to a two-year low and profits at industrial companies declined by 0.3 percent in June.
The Shanghai gauge has rebounded 12 percent since the July low as authorities took unprecedented measures to shore up markets including banning stake disposals by major shareholders, suspending initial public offerings and compelling state-run institutions to purchase equities.
Margin traders increased holdings of shares purchased with borrowed money by the most in four months on Monday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising 1.8 percent to 861.2 billion yuan.
— With assistance by Shidong Zhang