Asian stock prices rose sharply this morning as investors were encouraged by the announcement of a more flexible exchange rate policy from China, which also spurred an increase in commodity prices.
On the Tokyo Stock Exchange, the Nikkei index jumped more than 2 percent by 7:30 AM, while stock prices in Hong Kong and Shanghai strengthened by more than 2.5 percent. Stock indices in South Korea, India, Australia, and Singapore rose between 1.3 and 1.9 percent, and stock prices also surged on other Asian markets. Around 7:30 AM, the MSCI Asia-Pacific index, excluding Japan, was up nearly 3 percent, with the largest increases seen in the mining, energy, and industrial sectors. Investors were buoyed by an unexpected announcement from the Chinese central bank on Saturday that it would gradually make the yuan’s exchange rate more flexible. Since the financial crisis of 2008, China has kept the yuan’s exchange rate firmly ‘pegged’ to the dollar, which has put it under pressure from countries that believe the Chinese currency is undervalued. The Chinese central bank maintained the yuan’s exchange rate unchanged at 6.8275 yuan per dollar this morning, but on the spot market, the dollar is currently worth less than 6.81 yuan, its lowest rate since September 2008.
The People’s Bank of China ruled out the possibility of a sudden appreciation of the national currency, stating that it would keep the yuan’s exchange rate movement within a range of 0.5 percent, but would no longer peg it solely to the dollar, instead linking it more to a basket of major currencies. This has spurred stock price increases on exchanges as a stronger yuan would make Chinese export products more expensive, while, on the other hand, products from multinational companies exporting to China would become cheaper. Prices of oil, metals, and other commodities rose sharply this morning as the strengthening purchasing power of China is expected to increase demand. Thus, this morning, the futures price of oil jumped by 1.9 percent to $78.60 per barrel, the highest level in six weeks. As a result, stocks in the mining and energy sectors were among the biggest gainers this morning. U.S. futures indices also rose sharply by more than 1 percent, indicating a strong increase in stock prices at the start of today’s trading on Wall Street. In the currency markets, the euro strengthened against the dollar, with its exchange rate rising from $1.2385, the value it held on Friday, to $1.2430. Against the Japanese currency, the euro’s price rose from 112.34 to 112.97 yen. The exchange rate of the dollar against the Japanese currency remains stable around 90.70 yen. (H)
