SHANGHAI • China's yuan firmed against the US dollar yesterday after the central bank fixed a much stronger mid-point, but the currency is on course to be the worst-performing major Asian currency this year and have its biggest annual loss since 1994.
The yuan, which has reached an 81/2 year low, was on track to lose nearly 7 per cent against the US dollar this year, pressured by worries about the slowing Chinese economy and more recently by the resurgent dollar, which has spurred capital outflows from many emerging markets.
China's stock markets, meantime, have been among the worst- performing in the world this year.
Starting with a botched attempt to reduce volatility that instead triggered a spectacular meltdown, Chinese bourses have spent the year struggling against feckless policymakers, massive capital flight and the languishing yuan.
The benchmark Shanghai Composite Index closed yesterday down 12.3 per cent for the year, compared with a rise of 0.4 for Japan's Nikkei and Hong Kong's Hang Seng index. China was vying with debt-ridden Portugal for last place among the 40-plus countries tracked by Wall Street Journal's Market Data Centre.
Many market watchers expect the yuan to recoil further next year if President-elect Donald Trump's policies stoke stronger US economic growth and higher interest rates despite Beijing taking another step to degrade the US dollar in defining the value of its currency.
An arm of the People's Bank of China, which last year started setting the yuan against a basket of currencies, on Thursday said it is adding 11 units to that reference group. The move lowers the dollar's weighting by 4 percentage points, to 22.4 per cent, little more than twice the share of South Korea's won, a new entrant.
While the logic of determining the yuan's value against the currencies of its trading partners is clear, the problem is that the dollar is still the dominant reference in the perception of the public and the market. The US currency is on one side of 88 per cent of all foreign-exchange trading.
"The dollar-yuan rate will still be the benchmark that determines sentiment," said Mr Hao Hong, chief strategist in Hong Kong at Bank of Communications International Holdings. "The basket is just a reference, so the change in the index's composition and the efforts of keeping it stable will do little to boost confidence."
REUTERS, AGENCE FRANCE-PRESSE, BLOOMBERG