Tags: Yuan | love | affair | end

WSJ: Investors End Love Affair with Yuan

By    |   Tuesday, 28 Aug 2012 12:37 PM

For the last six years, investors flocked to the yuan as Chinese authorities let the currency rise. But now the yuan is descending, and investors are walking away.

The sharp slowdown in China’s economic growth has led the nation’s government to encourage a weaker yuan in a bid to boost exports, The Wall Street Journal reports.

Second-quarter gross domestic product growth totaled only 7.6 percent in China, the slowest rate in three years.

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The yuan has steadily appreciated since the government stopped restraining it in 2005, increasing 4.5 percent against the dollar last year. But it has dropped almost 1 percent so far this year.

And investors are jumping on that trend. "Bets on the depreciation of [the yuan] are gaining momentum," Wee-Khoon Chong, Asia rates strategist at Societe Generale in Hong Kong, told The Journal.

To be sure, no one is looking for a plunge. Societe Generale now predicts the yuan will drop 1 percent against the dollar for the year as a whole, compared with its previous forecast of no change.

Expectations of a weaker yuan also are putting a damper on sentiment for yuan-denominated “dim sum” bonds.

Ironically enough, Europe’s debt woes are contributing to the yuan’s weakness, as they hurt Chinese exports.

“Europe’s debt crisis is hurting Asian assets through damage on exports and risk sentiment,” Hideki Hayashi of the Japan Center for Economic Research tells Bloomberg. “Emerging currencies and risk assets are likely to see some downward pressure.”

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