Yuan Declines Before Paulson Visit as China Supports Economy
Manufacturing Index
The Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said today in an e-mailed statement. Export orders, output and new orders all contracted by the most since the survey began in 2005. A survey conducted by CLSA Asia-Pacific Markets also showed a record contraction.
China’s economy, the world’s fourth largest, expanded 9 percent in the third quarter from a year earlier. The CSI 300 Index of stocks has fallen 69 percent from a record in October last year and President Hu Jintao describes the economic situation as a test of the Communist Party’s ability to govern.
Non-deliverable forwards contracts show traders are betting that the yuan will depreciate 4.9 percent to 7.2066 per dollar in a year, the weakest in more than one month.
Forwards are agreements in which assets are bought and sold at current prices for settlement at a later-specified time. Non- deliverable forwards are settled in dollars rather than the underlying asset.
Economists are more bullish on the currency later next year. The yuan will strengthen 2.3 percent to 6.7 by the end of 2009, according to a Bloomberg survey of 28 analysts. They forecast the currency will end this year at 6.81.
Short-Term Bonds Gain
China’s government bonds due in five years and less rose on speculation investors have more funds for debt investment after the central bank last week cut benchmark interest rates and lowered requirements on banks’ deposit reserves.
The People’s Bank reduced the one-year lending and deposit rates by 1.08 percentage points Nov. 26. The lending rate fell to 5.58 percent and the deposit rate to 2.52 percent. It also reduced the reserve ratio for major commercial banks by 1 percentage point, effective Dec. 5.
Bonds maturing in more than five years dropped on concerns their yields have little room for further declines.
“Investors are expecting liquidity will continue to increase later this year after the rate cut last week, driving up the demand for short-term debt,” said He Xiuhong, a fixed- income analyst at GF Securities Co. in Guangzhou, the nation’s third-largest brokerage by revenue. “By contrast, people are more cautious about bonds with long maturities as there are more uncertainties in the longer run.”
The yield on the 3.34 percent note due September 2009 dropped 1.1 basis point to 1.8 percent, according to the China Interbank Bond Market. The price of the security rose to 101.15 per 100 yuan face amount.
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