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Asian Shares Slip, Though China Ekes Out Gain
China’s yuan stabilizes for third-straight day, offering markets some reprieve
By CHAO DENG
Updated Jan. 12, 2016 4:54 a.m. ET
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China shares eked out a gain Tuesday, though trading there and across the region remained choppy, as investors struggled to parse officials’ next moves.
The Shanghai Composite Index, which swung between gains and losses, closed 0.2% higher at 3013.88. The onshore Chinese yuan stabilized for the third-straight day, while the offshore currency reached its strongest level this year against the U.S. dollar.
Elsewhere in the region, Australia’s S&P/ASX 200 fell 0.1%, South Korea’s Kospi slipped 0.2% and Hong Kong’s Hang Seng Index fell 0.9%.
In Japan, where markets reopened after a national holiday, the Nikkei Stock Average tracked Monday’s regional losses, falling 2.7% as the yen strengthened.
Investors remain cautious as they trying to gauge which direction the central bank will guide the yuan, and whether officials will put new caps on the flood of money leaving China’s borders as its economy slows, said analysts.
Each day, China’s central bank sets a level around which the onshore yuan can trade. The currency steadied in recent days after weakening sharply last week.
“People have no idea what the authorities are going to do with forex policy really,” said Hao Hong, managing director at Bank of Communications Co. in Hong Kong. “People are nervous with the speed that we’re losing our forex reserves” after the yuan’s moves last week, he added.
China’s foreign reserves fell by 13% in 2015 to $3.33 trillion, the lowest level in three years, as the People’s Bank of China spent dollars to offset declines in the yuan. Analysts consider the steep decline in reserves an indication of increasing capital outflows from China.
Another unknown is the scale of central-bank intervention in the offshore market, where the currency trades freely, Mr. Hong said.
China shares opened higher Tuesday, after steep losses a day earlier. PHOTO: ZUMA PRESS
Traders say the offshore yuan has been strengthening as state-owned Chinese banks buy the currency, a sign China’s central bank is intervening to narrow the gap between onshore and offshore rates, which closed briefly earlier Tuesday.
That has limited the supply of the offshore yuan, tightening liquidity and sending the rate at which Hong Kong banks lend yuan to each other overnight to a record high of 66.8% on Tuesday. The rate jumped to 13.4% on Monday from 4% Friday. Higher borrowing costs make bets against the yuan expensive.
The offshore yuan on Tuesday reached its strongest level this year against the U.S. dollar, at 6.5650. It last traded at 6.5863 to one U.S. dollar. Late Monday, the currency strengthened as much as 1.5% to 6.5827 compared with the previous close.
China’s onshore yuan last traded at 6.5753 per dollar, weaker than 6.5695 at Monday’s close. Still it has stabilized in recent sessions after reaching a five-year low last week along with its offshore counterpart.
The strengthening of the offshore yuan “basically shows things are more under control by the central government,” which has helped shares stabilize, said Louis Lu, fund manager at CSOP Asset Management.
Last week, faster-than-expected depreciation of the yuan, by 1.5%, sparked losses in China that spread to other markets. Stocks in Shanghai fell 5.3% on Monday amid fears that Chinese authorities are unable to stem recent turmoil in its financial markets. They have lost 15% year to date.
China shares are just 3% above their summer low on Aug. 26, when a three-month rout had wiped trillions of U.S. dollars from the market and sparked a global selloff. The Shanghai Composite is currently off 42% from its June peak.
Overnight, the Dow Jones Industrial Average posted a modest gain, rising 0.3%, but stocks veered between gains and losses throughout the session.
Oil prices in the U.S. dropped below $32 a barrel for the first time since 2003, pummeled by a stronger dollar and worries over Chinese demand.
Brent crude oil, the international benchmark, fell 2.5% to $31.07 a barrel in Asia.
Energy shares on Australia’s S&P/ASX 200 fell 3.5%, with shares of Liquefied Natural Gas Ltd. plunging 7.5%. The sector lost 1.8% on the Hang Seng.
Gold prices were off 0.1% at $1,094.90 a troy ounce. They have gained more than 3% year to date as investors seek haven assets amid the China volatility.
In currencies, the Japanese yen rose 0.4% to ￥117.37 to the dollar, from its level late Monday. That pushed the Nikkei lower, as a stronger yen hurts Japanese exporters.
—Fiona Law and Anjani Trivedi contributed to this article.
Write to Chao Deng at Chao.Deng@wsj.com
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