Offshore Yuan Heads for Monthly Advance Along With China Shares

  • Yuan has rallied 2.1% in January, biggest gain since 2010
  • Shanghai Composite recovers after turbulent December

Why Money Keeps Flowing Out of China

The offshore yuan headed for its steepest monthly gain since September 2010, buoyed by the nation’s efforts to stem capital outflows and clamp down on speculators. Chinese stocks extended their January rally.

The exchange rate in Hong Kong has gained 2.1 percent this month, paring the advance slightly on Thursday, to trade at 6.8330 per dollar as of 4:21 p.m. The Shanghai Composite Index climbed 0.3 percent, taking its gain since Dec. 31 to 1.8 percent. The Hang Seng Index rose for a fourth day, poised for its best month since March.

The yuan’s recovery from a slump at the start of January was underpinned by a surge in Hong Kong funding costs that punished bears. Efforts by policy makers to curb the amount of money leaving China are showing signs of working, with cross-border yuan payments dwindling in December. The state’s hand was also visible in the performance of the $6.6 trillion stock market, through efforts to ensure stability during President Xi Jinping’s appearance at the World Economic Forum in Davos. China’s markets will be closed from Friday for the week-long Lunar New Year break.

"The funding squeeze offshore flushed out a lot of speculative positions," said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. "That makes the market wary about positioning. The funding squeeze and broad dollar trend helped to lend support to the yuan."

China’s markets are having a better month than December, when the nation’s currency, shares and bonds all slumped amid concern about tightening liquidity. Losses for debt investors deepened in January, with the benchmark 10-year sovereign yield heading for its biggest monthly increase since 2010.

Read more here about about the outlook for bonds.

While mainland stocks have risen from December, trading has been light, with daily average turnover 34 percent less than the same period a year earlier, according to data compiled by Bloomberg.

  • The Hang Seng Index climbed 1.4%, taking its January gain to 6.2%, while the Hang Seng China Enterprises Index advanced 1.2%. Hong Kong’s stock market will close after the morning session on Friday, and re-open on Wednesday.
  • Tsingtao Brewery Co. jumped 6.6% in Hong Kong, the biggest gain on the Hang Seng China Enterprises Index. Investors are expecting the company to get a new strategic partner that can inject momentum, Steven Leung, executive director at UOB Kay Hian (Hong Kong) Ltd., said by phone.
  • China Unicom (Hong Kong) Ltd. rose 3.6% even after saying it expects 2016 profit to drop about 94% from a year earlier. The forecast was better than expected, and financial results are likely to “strongly rebound” in 2017, Kai Qian, an analyst at China International Capital Corp., wrote in a report Wednesday
  • PetroChina Co. declined for a second day in Shanghai after rising to a one-year high earlier in the week. The country’s biggest listed oil and gas producer said full-year net income in 2016 fell by as much as 80%

— With assistance by Kana Nishizawa, and Helen Sun

Before it's here, it's on the Bloomberg Terminal.