‘People Are Getting Into A Bit Of A Panic Now’: Yuan Dive Spooks Markets As H-Shares Meet The Bear

Ok, so China looks like it’s in some pretty serious trouble.

One day after the SHCOMP officially fell into a bear market, H-shares suffered the same fate, falling 2.2% to bring losses since their January 26 highs to 21%.

CEI

That is a pretty damn remarkable turnaround. If you think back to January, H-shares were a veritable world-beater. At one point, they staged a truly incredible 19-session win streak:

CEI2

Hong Kong-listed shares of Industrial & Commercial Bank of China have fallen for 13 days a in a row:

ICBC

Onshore markets got no relief on Wednesday either, with the SHCOMP falling another 1.1%:

SHCOMP

Clearly, the yuan has people spooked. We’ve been over this a hundred times in the past several days, but just to reiterate, the currency has exactly nothing working for it right now. There’s speculation Beijing could deploy it as a weapon in the trade war with Trump (or worse, that what we’re seeing is evidence that it’s already been deployed) andthere’s decelerating growth which has necessitated loose monetary policy that in turn makes the policy divergence with the Fed wider.

Both of those things are conducive to capital flight if they persist. The offshore yuan is at its weakest against the dollar since December:

USDCNH

And if you look at a chart of the onshore yuan that captures the August 2015 deval., you can get a sense of how quickly it’s falling:

USDCNY

So yeah, this is some reasonably harrowing shit – to the extent it makes sense to use “reasonably” with “harrowing.”

“Investors are getting into a bit of a panic now,” Ken Peng, at Citi Private Bank in Hong Kong told Bloomberg for a piece out Wednesday, adding that “policy makers might be allowing the market to push the yuan weaker, without doing it themselves, as the trade tensions with the U.S. worsen and will be wary of burning foreign-exchange reserves to little effect.”

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Disclosure: None of what I write here is to be construed as advice to buy or sell any kind of asset. It is merely my personal and not my professional opinion. Any asset can go to zero.

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