Money

Yuan shift won't make stocks better buys: Mobius

By Chen Shiyin (China Daily)
Updated: 2010-06-24 09:07

SINGAPORE - China's decision to end its currency peg to the dollar hasn't made the country's stocks more attractive because any gain in the yuan is likely to be limited, according to Templeton Asset Management Ltd's Mark Mobius.

The Shanghai Composite Index had gained the past two days after the central bank said it will make the nation's currency more flexible, boosting speculation the yuan will strengthen and reduce the need for interest-rate increases to tame inflation. The measure fell 0.73 percent to 2569.87 on Wednesday.

China's stocks "have not become more attractive generally" after the central bank's announcement, said Mobius, who oversees about $34 billion in emerging markets as Templeton Asset Management's Singapore-based chairman. "The yuan appreciation will not have a dramatic impact since the exchange rate change is not expected to be significant given the change will be gradual."

Mobius' view contrasts with AMP Capital Investors Ltd, an Australian asset manager with more than $90 billion in assets, which said it may buy more yuan-denominated equities in China. Nomura Holdings Inc turned "bullish" on China's shares for the first time this year amid signs of improvement.

The Chinese currency declined the most against the dollar since December 2008 on Tuesday, after surging 0.42 percent on Monday, on the prospect gains may be limited because the yuan has already strengthened 18 percent against the euro this year, eroding earnings for exporters to the European Union.

China will "ensure the exchange rate's fluctuation is controllable and prevent the possibility of market forces causing excessive adjustment in the rate", the central bank said in the June 20 statement.

Worst performer

The Shanghai index has declined 21 percent this year, the worst performer in Asia, as the government curbed bank lending and restricted multiple home purchases to cool the property market and restrain inflation.

Mobius said on May 27 that he's been buying stocks in China, along with those in Brazil, Russia and India, and called the slump in emerging-economy shares a "correction" in a bull market.

Related readings:  Yuan drops 2nd day after policy adjustment  Industrial metals edge up on yuan policy moves  China expands pilot program of yuan settlement  Yuan rises to 5-year high against dollar

China's decision to make its currency more flexible was "largely expected" and the yuan may trade in a narrow range this year, Mark Konyn, RCM Asia Pacific Ltd chief executive officer, said from Hong Kong on Wednesday.

The Chinese government had prevented the currency from strengthening against the dollar since July 2008 to help exporters cope with the global financial crisis. The yuan appreciated 21 percent in the three years after a managed float against a basket of currencies was introduced in 2005.

'Relieve pressure'

The yuan policy shift may relieve pressure on the Chinese government to step up measures to control economic growth, said Nader Naeimi, a Sydney-based strategist at AMP Capital. The fund manager may also buy more commodity shares because a stronger yuan will boost Chinese demand for raw materials, Naeimi said.

"A number of liquidity indicators are close to turning," Nomura analysts led by Sean Darby said in a report on Wednesday. "Changes in the yuan's peg to the US dollar, large cash holdings of domestic fund managers and improving risk appetite are sufficient catalysts to turn around performance in the short term."

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