China Yuan One-Off Gain May Spur Stocks, Goldman Says (Update2)
March 04, 2010, 5:57 AM EST
March 4 (Bloomberg) -- A “one-off” appreciation of the Chinese currency may trigger a rally in stocks, according to Goldman Sachs Group Inc.
Allowing the yuan to gain against the dollar would signal the government’s confidence in the domestic and global economy and its willingness to use market measures to contain inflation, analysts led by Timothy Moe wrote in a note to clients.
The Goldman Sachs analysts said China’s stocks would benefit to a “moderate extent” from a gradual appreciation of the yuan while a one-time gain may spur a “broader, more substantial equity rally.”
The government will maintain a steady yuan, Commerce Minister Chen Deming said in Beijing yesterday at the opening meeting of the Chinese People’s Political Consultative Conference, the top advisory body to the country’s legislature.
The benchmark Shanghai Composite Index dropped 2.4 percent today, the most in five weeks. The gauge has fallen 7.7 percent this year, after surging 80 percent in 2009, on concern the country’s economic rebound will lose pace as the government reins in stimulus to avert asset bubbles. The central bank raised its reserve-requirement ratio twice this year in the first signs of policy tightening since June 2008.
‘Something’s Brewing’
Goldman Sachs Chief Economist Jim O’Neill said last month China may be poised to let its currency strengthen as much as 5 percent to slow the world’s fastest growing major economy.
“I have a strong opinion that they’re close to moving the exchange rate,” O’Neill said in a telephone interview from London after China’s central bank told lenders on Feb. 12 to set aside larger reserves. “Something’s brewing. It could happen anytime.”
Stephen Jen of BlueGold Capital Management LLP said Feb. 18 China may let its currency appreciate by 5 percent as early as this month to prevent economic growth from stoking inflation.
March 04, 2010, 5:57 AM EST
March 4 (Bloomberg) -- A “one-off” appreciation of the Chinese currency may trigger a rally in stocks, according to Goldman Sachs Group Inc.
Allowing the yuan to gain against the dollar would signal the government’s confidence in the domestic and global economy and its willingness to use market measures to contain inflation, analysts led by Timothy Moe wrote in a note to clients.
The Goldman Sachs analysts said China’s stocks would benefit to a “moderate extent” from a gradual appreciation of the yuan while a one-time gain may spur a “broader, more substantial equity rally.”
The government will maintain a steady yuan, Commerce Minister Chen Deming said in Beijing yesterday at the opening meeting of the Chinese People’s Political Consultative Conference, the top advisory body to the country’s legislature.
The benchmark Shanghai Composite Index dropped 2.4 percent today, the most in five weeks. The gauge has fallen 7.7 percent this year, after surging 80 percent in 2009, on concern the country’s economic rebound will lose pace as the government reins in stimulus to avert asset bubbles. The central bank raised its reserve-requirement ratio twice this year in the first signs of policy tightening since June 2008.
‘Something’s Brewing’
Goldman Sachs Chief Economist Jim O’Neill said last month China may be poised to let its currency strengthen as much as 5 percent to slow the world’s fastest growing major economy.
“I have a strong opinion that they’re close to moving the exchange rate,” O’Neill said in a telephone interview from London after China’s central bank told lenders on Feb. 12 to set aside larger reserves. “Something’s brewing. It could happen anytime.”
Stephen Jen of BlueGold Capital Management LLP said Feb. 18 China may let its currency appreciate by 5 percent as early as this month to prevent economic growth from stoking inflation.