China’s renminbi and global stocks rise as markets kick off 2021

China’s renminbi and global stocks rise as markets kick off 2021

China’s currency rallied against the dollar and most global equity indices were up on the first day of trading in 2021.

The onshore-traded renminbi strengthened 0.9 per cent to Rmb6.4692 per greenback on Monday as it crossed the important 6.5 per dollar threshold for the first time since June 2018. The dollar, as measured against a basket of its trading peers, fell 0.3 per cent.

The renminbi has now erased nearly all the losses it has suffered against the dollar since President Donald Trump kicked off a trade war between the countries. The currency has been boosted partly due to the country’s economic recovery from the coronavirus pandemic and hopes that the incoming Biden administration could lead to reduced tensions between Beijing and Washington.

Julia Ho, head of Asian macro at Schroders, said other factors supporting the renminbi were higher interest rates in China, as well as “the country’s improved current account position, and pent-up demand among global investors who wish to diversify away from the US dollar”.

Analysts suggested that some emerging market currencies could continue to benefit from dollar weakness as coronavirus vaccines are rolled out. “Uncertainty is diminishing and the strong global growth recovery should favour the rest of the world, so we think the dollar has some overvaluation to work off,” said Patrik Schowitz, global multi-asset strategist at JPMorgan Asset Management. 

Meanwhile, most regional equity indices rose as traders returned from the new year holiday.

Mainland China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks were up 1.2 per cent after the latest Caixin/Markit manufacturing purchasing managers’ index showed that factory output remained firmly in expansionary territory last month, even if growth slowed slightly compared to November.

Hong Kong’s Hang Seng index added 0.8 per cent. However, shares in China’s three largest state-run telecoms groups listed in the city tumbled after the New York Stock Exchange began delisting the companies under a Trump administration ban on US investment in businesses allegedly linked to the country’s military.

China Mobile fell as much as 4.5 per cent to its lowest level in more than a decade, while China Telecom and China Unicom dropped as much as 5.6 and 3.6 per cent, respectively.

Australia’s S&P/ASX 200 and South Korea’s Kospi both added about 1.2 per cent.

Japan’s benchmark Topix index dropped about 1 per cent after local media reported the government could declare a state of emergency in Tokyo and surrounding areas to counter a surge in coronavirus cases.

Futures for Wall Street’s S&P 500 index were little changed, while those for the FTSE 100 slipped 0.2 per cent.

Oil prices climbed with Brent crude, the international benchmark, up 1 per cent to $52.34 per barrel. West Texas Intermediate, the US marker, also gained 1 per cent to $48.98 per barrel.

Gold, a haven asset that is often in demand when the dollar weakens, rose 1.3 per cent to $1,922.74 per troy ounce.

Analysts said investors were looking ahead to a pair of run-off elections in Georgia this week that will determine whether Democrats of Republicans control the US Senate.

“It could be a market event if the Democrats do win both of the Georgia senate seats, which would enable Biden to push more of his tax and spending policy,” added Mr Schowitz. “It’s quite possible we could see a negative initial reaction from equity markets over corporate tax and regulation worries.” 

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