Currencies in Asia Tumble on Devaluation of Chinese Yuan

By Chao Deng 

        Currencies in Asia tumbled Tuesday and stocks in China fluctuated after China's central bank devalued its tightly controlled currency.
        The central bank's move weakened the yuan 1.6% against the U.S. dollar Tuesday. The dollar rose to as high as 6.3299 Chinese yuan from its close 6.2136 late Monday. It is currently at 6.3010.
        China shares wavered between positive and negative territory, a day after the market posted its largest daily percentage gain in a month. The Shanghai Composite Index was last flat at 3927 while the smaller Shenzhen market was up 1% at 2406.43.
        Equity markets are going to be a lot more focused on currencies and central-bank policies going forward, said Gavin Perry, managing director at Perry International Trading Ltd. "In the mainland, there's going to be a lag effect because the market is more retail driven," but the effect is greater in Hong Kong where "[investors can] see it as a positive for underlying China Inc."
        Hong Kong's Hang Seng Index is up 1.4% and a gauge of Chinese companies listed in the city is up 2.2%.
        In response to criticism over China's exchange-rate policy, the People's Bank of China's move on Tuesday came with an eye toward making the yuan's value more market-based: The midpoint, or fixing, will now be based on how the yuan closes in the previous trading session. Until now, the fixing had been entirely determined by the central bank itself.
        As a result, the yuan's fixing against the U.S. dollar was lowered 1.9% Tuesday from the previous day. The yuan is allowed to trade 2% above or below the People's Bank of China's daily reference rate against the U.S. dollar.
        The central bank's move comes after disappointing Chinese trade data over the weekend cast doubt on the economic health of the world's no. two economy. It also follows the International Monetary Fund's recent announcement to delay its decision on whether to include the yuan in its basket of reserve currencies.
        A weaker yuan could threaten other economies in the region that compete with Chinese exports, and the move sent other currencies in Asia lower. A weaker yuan could encourage other central banks in the region to devalue their currencies to stay competitive.
        The U.S. dollar rocketed to as high as 1170.80 South Korean won, from 1158.20 late yesterday in Asia. The Korean won was last down 0.8% to trade at 1167.50 to the U.S. dollar.
        The Thai baht fell 0.4% to trade at 35.20 to the U.S. dollar while the Singapore dollar fell 0.5% against the U.S. dollar.
        The New Zealand dollar and Australian each fell by more than 0.5% each against the U.S. dollar.
        Stock markets elsewhere in the region were mixed, following hopes of Chinese stimulus after weak data but a rise in U.S. stocks overnight.
        Japan's Nikkei Stock Average was down 0.2%, Australia's S&P ASX 200 is down 0.7% and South Korea's Kospi was up 0.5%.
        The recovery on Wall Street as well as expectations for further policy from China to support the economy may help Japan shares, said Hiroichi Nishi, general manager of equity division at SMBC Nikko Securities.
        On Monday, the Shanghai Composite Index finished up 4.9%, its biggest one-day gain in a month. Weak economic data lifted expectations that Beijing would boost spending and continue to prop up the market by buying shares. Talk about a possible merger between China's state-shipping giants revived hopes for reform of state-owned enterprises.
        Data Tuesday showed the new yuan loans in China hit a six-year high of 1.48 trillion yuan ($238.3 billion) in July, up from 1.27 trillion yuan in June.
        A stronger Japanese yen, often a negative for Japanese exporters, capped the Nikkei's gains. The U.S. dollar traded at Yen124.12, compared with Yen124.61 at late Monday in Asia.
        While Brent oil was down 0.5% to $50.14 in Asia trade, prices were up from multi-month lows after on a forecast drop in U.S. shale-oil production and rumors of an emergency meeting of the Organization of the Petroleum Exporting Countries.
        James Glynn contributed to this article.
        Write to Chao Deng at Chao.Deng@wsj.com
        (END) Dow Jones Newswires

        August 10, 2015 23:06 ET (03:06 GMT)