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Macroscope | China’s steady hand on falling yuan bolsters investor confidence
Hannah Anderson says the Chinese authorities’ timely intervention to stabilise the renminbi, in the face of a slowing economy amid trade war tensions, has reset investor expectations
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Worries about internal and external fragilities recently sparked a steep slide in the Turkish lira. And a weakening economy and a large current account deficit prompted a sell-off in the Argentinian peso. As these events grabbed headlines, investors are searching for opportunities in other emerging economies, which are, nevertheless, similarly under stress.
Since April, the Chinese renminbi has suffered some of the biggest declines of any currency in Asia (down 9 per cent since April 1). Does this mean China is facing a rapidly worsening domestic situation that investors should be wary of?
A quick glance at the Chinese equity market would indicate this is the case. The benchmark CSI 300 index is down 24 per cent from its highest point in January.
Other indicators similarly suggest some grounds for worry. High-frequency activity indicators, like purchasing managers’ indices, showed slowing output over the first half of the year, while China posted a current account deficit during the first six months of the year – meaning it imported more than it exported.
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Bank lending and corporate investment have also slowed in 2018. Meanwhile, tensions between the US and China over trade remain high. All together, these factors indicate that China’s economy is in the middle of a slowdown and that investors would want to hold fewer Chinese assets than they once did.
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