Last year when Beijing suddenly devalued the renminbi, concerns over the prospects of the Chinese currency sparked a massive selloff in the Hong Kong stock market and sent ripples to overseas equities as well.
But now, as the unit has hit a multi-year low, the market is much more resilient.
Why is this so?
Fund manager Alex Wong offers a couple of reasons in his Hong Kong Economic Journal column.
For starters, when something unexpected happened, the first reaction of the market is often extremely strong because market participants would assume the worst out of their wild speculation.
But more than a year later, investors realized that renminbi decline isn’t the end of the world and China’s economy has remained steady. So this time around, as yuan weakened further, market response is much muted, Wong writes.
Also important is the debt factor. Before last year’s yuan devaluation, lots of companies had borrowed US dollar or Hong Kong dollar loans to finance their operations in China to take advantage of lower interest rates.
The sudden yuan devaluation could lead to huge foreign exchange losses, thus the panic selling.
But as yuan temporarily settled down in November, many took the window of opportunity to replace their overseas debt with yuan loans.
Which is why the latest round of yuan fall has not brought much downward pressure, said Wong.
On the contrary, investors have been on the hunt for sectors that might benefit from a weaker yuan.
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