Chinese markets rally after yuan’s three-day slide brought to a halt

CHINA’S yuan regained some of its strength yesterday after three straight days of steep falls as the central bank stepped in to stabilise the currency for the first time since devaluing it on Tuesday.

Beijing set the official exchange rate for the yuan 0.05pc higher against the dollar, a day after it sought to reassure markets that it was not engaging in a competitive devaluation.

The move, along with reassurances from China’s financial regulator that it would intervene to prevent excessive stock market volatility, led to a rally in Shanghai-listed stocks.

China’s largest index, the Shanghai Composite, rose by 0.3pc as the country’s financial watchdog – the China Securities Regulatory Commission – said that it would stabilise the stock market for “a number of years”.

The People’s Bank of China surprised markets on Tuesday after it allowed the currency to slide by close to 2pc, the steepest two-day fall since 1994.

Successive falls on Wednesday and Thursday left the yuan – also known as the renminbi – trading nearly 3pc lower against the US dollar.

That prompted China’s central bank on Thursday to attempt to calm jittery markets by insisting that it was not trying to engineer a rumoured 10pc fall in the yuan.

Yi Gang, deputy governor of the central bank, said it stood ready to step in if volatility became “excessive” and the market started “behaving like a herd of sheep”.

“Trust the market, respect the market, fear the market, and follow the market,” he told a press conference.

Economists had feared that the central bank was resorting to devaluing its cur- rency in an attempt to boost growth, as official GDP figures are widely believed to have been manipulated in an attempt to present a brighter picture of the Chinese economy.

But ratings agency Moody’s said that the renminbi’s depreciation would “not have material credit implications because it will not significantly bolster export growth”.

“The restoration of sustained, stronger export growth will likely depend on a more robust recovery in demand from the developed market economies than currency depreciation,” the agency said in a report.

Concerns about a weaker China have sent shockwaves throughout financial markets, resulting in broad sell-offs in stocks across the globe. A continued depreciation could have exacerbated these movements.

Amy Yuan Zhang, of Nordea bank, described the yuan’s upwards move on Friday as a “pause in the yuan devaluation”. She said: “The size of the change might be small but the symbolic value is crucial.”

Neighbouring currencies were buoyed by the moves, with the South Korean won and Australian dollar both 0.2pc higher against the US dollar.

However, other Asian currencies fell, led by Malaysia’s ringgit, which suffered one of its worst one-day declines on Friday, falling to a fresh 17-year low. Asian currencies overall recorded the biggest weekly drop in four years.

Kit Juckes, of Société Générale, said that he expected the Chinese economy to continue slowing, such that, “albeit at a more measured pace and with less fanfare than this week, we’ll see more yuan weakness in the weeks and months ahead”.