Market rises on first day after yuan reform
By Jiang Yan (China Daily)
Updated: 2005-07-23 13:27

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 per cent 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 per cent 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 per cent and 4.18 per cent for China Southern.

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 per cent to 3.83 yuan (47 US cents).

"The 2-per-cent 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 Centre.

"June's economic data, signalling 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 per cent 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.

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