China Adds Six Yuan Market Makers To Interbank Market (Photo : Getty Images)
In a strongly worded editorial on Xinhua News Agency, China told yuan traders “not to short” the country’s currency.
The exact words of the warning was "Don't be stupid," reported Business Insider. The state-run media outlet wrote the editorial in the aftermath of the continuous depreciation of the yuan which caused volatility in the world currency markets.
In using the word “stupid,” Beijing means shorting the yuan which would go against the Chinese government’s attempt to stabilize the currency. The way the traders “short” the yuan is by speculative actions and shorting activities which could instead cause currency speculators to suffer huge losses.
Although China wants to paint a picture of currency stability, the economic slowdown and decline of old industries such as property and manufacturing place pressure on the yuan. These developments made China’s economy transition to domestic-based consumption from investment-based.
But China believes the slowdown is only interim, however, Chinese monetary experts do not want the market to dictate the direction of China’s economic recovery. That explains the warning that Xinhua just made for currency traders to stop selling the yuan.
However, a hedge fund manager whose future wagers on Chinese stock and got back more than 6,200 percent in 2015 in returns, is now advising investors in 2016 to sell their shares before they suffer more losses. Huang Weimin, who started the Yourung Fund in 2014, forecast another 15 percent decline in the Shanghai Composite Index, China’s bellwether, in the first six months of 2016 due to the economic slowdown and weaker currency which lead to further capital flight, reported Bloomberg.
China’s 99 million stock investors appear to be following Huang’s advice as volumes in China’s cash equities market, valued at $5.6 trillion, plummeted to its lowest levels in three months last week. Since June, trading in stock index futures also went down to 99 percent.
The editorial instead challenges investors who are smart and with a long-term vision to take advantage of the opportunities that would arise from the ongoing restructuring of the Chinese economy and invest in the Asian giant’s future to reach a win-win scenario and eventually benefit from the fruits of the reforms that China is putting in place.
