Thursday's yuan revaluation showed an immediate upward impact on
China's stock market. However, analysts are cautious of how long
this will last.?
The benchmark Shanghai composite index climbed 2.5 percent to
end Friday's trading at 1,046.32 points, with a turnover more than
double that of the previous day.
Airline and petrochemical stocks led the day's active trading as
the biggest beneficiary of the yuan move, traders said.
Shares in Hainan Airlines, a regional carrier based in south
China's Hainan
Province, soared almost 10 percent to end at 2.33 yuan (29 US
cents), on investors' expectations that China's carriers would face
lower financing costs as they have a large chunk of their
borrowings in foreign currencies.
Prices of China Eastern rose 7.11 percent and China Southern
4.18 percent.
Investors also poured money into refiners that rely heavily on
oil imports and thus are expected to benefit from lower costs.
Sinopec, Asia's top refiner, rose 5.8 percent to 3.83 yuan (47
US cents).
"The 2 percent yuan revaluation is a direct trigger, but it is
only part of the reason for today's market upturn," said Ba
Shusong, a senior economist with the State Council's Development
Research Center (DRC).
"June's economic data, signaling the government's loosening of
its credit tightening policy, plus the progressing reform on the
non-tradable shares, also helped boost investors' morale."
Ba told China Daily on Friday: "The most difficult time
for China's stock market has passed."
However, other analysts were more pessimistic.
The positive impact of the yuan revaluation "may last only two
or three days," said Xu Gang, research head at CITIC
Securities.
"The yuan move, in the longer term, will have a negative impact
on China's stock market, especially on the country's exporters," Xu
said.
The change will blunt their price edge in overseas markets and
burden them with higher production and operating costs as many pay
their bills and employees in RMB.
During Friday's trading, investors shunned exporters. For
example, the textile firm Youngor Group Co. Ltd. fell 1.75 percent
to 3.36 yuan (41 US cents).
Following China's move, Malaysia also unpegged its ringgit from
the US dollar to replace it with a managed float.
The new yuan regime will likely lead to further yuan revaluation
over time and encourage greater currency appreciation in other
Asian countries, thus leading to a burden shift of the US dollar
adjustment from Europe to Asia, said David Woo, head of global
Forex strategy at Barclays Capital.
At the first-day trading after revaluation, the yuan closed
weaker at 8.1111 to the US dollar.
Meanwhile, Hong Kong economists, officials and industrial
leaders said the appreciation of the yuan is good for the special
administrative region's economy, with mainlanders' consumer power
increasing.
Associate Professor at the Department of Economics of Chinese
University of Hong Kong (CUHK)?Kwan Cheuk-chiu
expects yuan appreciation will accelerate the pace of Hong Kong's
economic recovery.
The yuan's appreciation will lead to a larger tourist and
capital influx into Hong Kong, which will surely enhance the local
economy, Kwan said. Based on that, he has raised his projection on
2005 GDP growth by 0.5 percentage to 6 percent.
The trade sector, the city's pillar industry, will also receive
a shot in the arm.
Secretary for Commerce, Industry and Technology John Tsang
believes the yuan's appreciation will help Hong Kong exports become
competitive on the mainland market but that it will not be too high
since the appreciation rate was a mild 2.1 percent.
The city's other pillar industry, the property sector, also
remains sanguine after the yuan appreciation.
Henderson Land Development Deputy Chairman Colin Ko-yin Lam said
that mainland property buyers will find Hong Kong properties
relatively cheap after the yuan revaluation, thus luring them to
invest in Hong Kong's real estate.
That would be good to the local market, he said.
Chief analyst at Midland property Lau Ka-Fai agreed that the
buying spree of mainland property by Hong Kong investors is
feverish in anticipation of further yuan appreciation.
In an indirect way, Lau added the increasing number of mainland
tourists will also give an impetus to the local real estate
market.
"Their coming will push up the local retail sector and may boost
the rent on street shops," he said, adding that the property market
will also benefit.
Labor-intensive sectors would be greatly affected by the yuan
rate change, said chief economist of the Trade Development Council
Edward Leung.
He suggested that the yuan revaluation should have a more
significant effect on Hong Kong businesses engaged in
labor-intensive sectors such as apparel and footwear.
However, the impact will be little on capital-intensive
industries such as electronics, telecom and jewellery.
Some also said a 2.1 percent appreciation of the yuan will play
a small role in Hong Kong and another appreciation would likely
bring greater impact.
HSBC chief economist for China George Siu-kay Leung argued that
the Hong Kong economy would not be much affected if the yuan does
not appreciate by more than 5 percent within six months.
Striking a note of caution, analysts also said the yuan move
would result in rising consumer prices as imports from the mainland
would be dearer.
Edward Leung, chief economist of Hong Kong Trade Development
Council, said that the renminbi move would boost mainland export
prices by 0.6 percent to 1 percent.
"The CPI (consumer price index) is likely to rise another extra
0.3 to 0.5 percentage point to 2 percent at the yearend as a result
of dearer consumption import from the mainland," Kwan Cheuk-chiu
said.
DBS also said in a report that inflation in Hong Kong will be
stimulated from about 1 percent to 3 percent by early 2006.
Hong Kong's CPI stood at 1.2 percent in June, according to the
latest official data.
(China Daily July 23, 2005)