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Recap Of The Week’s Top Stories…

Chinese Yuan Gains Across The Board

The Chinese yuan advanced the most since the end of the dollar peg, appreciating to 7.5410 against the US dollar today inNew York.  Subsequently, with major currency weakness throughout the day, the Chinese yuan was able to gain against both the Euro and Pound Sterling as well.  Against the euro, the yuan traded higher at 10.28 while trading up at 15.17 against the pound sterling.  Supportive of the day’s gains were speculation that rising demand may be gearing up for more Chinese stock sales next week, with two initial public offering slated for public exposure.  Guilin Layn Natural Ingredients Corp. and Grangdong Orient Zirconic are both expected to go public next week with the Bank of Beijing set for another subsequent offering. 

Chinese Finance Minister Steps Down Amid Claims, Four Additional Officials Removed

Ahead of a Communist Party congress in October, China’s finance minister Jin Renqing resigned for stated “personal reasons” according to the State Council.  Purporting the move was an article in the South China Morning Post that revealed the former minister had been accused of improper conduct.  Quick to instill stability in the headline government, a replacement has been found in 59-year old Xie Xuren the director of the State Administration of Taxation.  Although sparking some cause for concern, the incident has been minimized as sentiment has now spread that the removal of Jin will have limited effects on monetary policy.  Incidentally, Xie remains a staunch advocate of President Hu Jintao’s policies, ensuring that currently running regime will remain in place.  Separately, four other officials have been removed from office following accusations of corruption.  According to Xinhua News Agency, the removal of the officers are but a taste of the Communist Party’s attempt at cracking down on deeply rooted corruption throughout agencies ahead of the aforementioned meeting of party leaders.

China Sells Bonds For Reserve Fund, First Step For Investment Agency

In the first steps towards establishing an investment fund, China’s government sold 600 billion yuan in bonds to help fund the agency that will help in investing the country’s massive reserves.  The Ministry of Finance sold benchmark 10-years to the central bank in working towards a $200 billion investment company that is hoping to add returns to $1.33 trillion in current reserves.  In a statement by the Ministry, the sales was aimed at helping to “reduce the size of foreign exchange reserves and improve returns.”  Subsequently, longer termed maturities, which are expected in future transactions, will “diversify bond types and the duration structure.”  On completion of the fund, the agency’s holdings will outpace Temasek Holdings Pte, which has $107 billion under management.

Pudong Relationship Aims To Start China Fund

In attempts to capture investor appetite for equity market speculation, Axa SA and Shanghai Pudong Development Bank are set to create a fund that will be aimed at investment opportunities in the world’s fastest growing economy.  The asset management venture under Axa Spdb Investment Managers Co. is looking to take advantage of rising stock market valuations as more and more households look to increase their risk taking ability.  This is a different environment compared previous beliefs that building a savings nest egg was the proper approach.  Notably, however, with growing institutional investment, the landscape could certainly change.   The index has recently seen growth where institutional investors and fund managers have comprised a whopping 44 percent of the stocks traded on the exchange.

Written by: Richard Lee, Currency Strategist