China’s benchmark stock index has just made its biggest weekly gain in two months. Investors bet that the weaker yuan will help to boost the economy.
The Shanghai Composite Index rose 0.3% at the close today and this week the index advanced by 5.9%. The yuan lost 3% for the week as a result of Tuesday’s surprise devaluation.
Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. in Shanghai said:
The prevailing local view seems to be that the cut was reasonable considering the slowdown in the economy (…)
There is a perception that the authorities will introduce further measures to support the economy.
According to Bloomberg:
While yuan devaluation roiled markets around the world this week on concern a weaker currency will trigger competitive devaluations and spur deflation, depreciation has since slowed after China signaled support. Data this week showed exports tumbled and industrial production grew slower than expected.
China announced its plan to devalue the nation’s currency on Tuesday, much to the surprise of the market, and said that it was going to strengthen market-oriented reforms in addition to increasing two-way market volatility, allowing depreciation to counter a slump in the nation’s exports.