After some stabilisation, Chinese stocks took a big hit overnight, falling 5% to the lowest level in more than two years. However, in contrast with the declines earlier this year, this was part of a global sell-off that included the US market. The sharp market fall was driven by the tech sector and centred on tech. The share price of China’s biggest tech company Tencent is down more than 40% from the peak in January.
The downward pressure on the CNY continued after China cut the Reserve Requirement Ratio for the third time this year. We expect the trend of a weaker CNY to continue and USD/CNY to hit 7.20 in 12 months. However, we doubt the US will label China as a currency manipulator in its report next week.
Bond yields and rates have been broadly stable lately.
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