Asia Opens the Week Weak, While the Yuan keeps Climbing

Asian share markets are mostly flat or slightly down today, opening the week on a quiet note.

Japanese markets are closed for a holiday today.

Continued worries about the EU Debt Crisis and the drop in the euro have foreign investors cooling their heels.

South Korea’s Kospi declined 0.8%, while Australia’s S&P/ASX 200 Index slipped 0.1%, Australia’s seasonally adjusted retail sales were flat in November, the Australian Bureau of Statistics reported Monday. Retail sales had risen 0.2% in October. Economists had been expecting a rise of 0.3% for November retail sales, according to a survey from Dow Jones Newswires. Sales were down 0.4% in the clothing, footwear and personal accessory category, and down 0.1% in department stores, the ABS reported.

In China, Hong Kong’s Hang Seng Index fell 0.7%. The Shanghai Composite Index however, rebounded from a near three-year low hit on Friday to rally 2%.

“The market is listless… people are waiting for some kind of breakthrough [from the U.S.] and waiting for the announcement of the reduction of the reserve requirement ratios from mainland China,” said Peter Lai, Hong Kong-based director at DBS Vickers.

Chinese developers broadly declined after property major China Vanke Co. Wednesday reported a 30% tumble in December sales. China Vanke shares dropped 1.1% and Oceanwide Real Estate Group Co. lost 1.5% in Shenzhen. Poly Real Estate Group Co. eased 2.5% in Shanghai, while China Overseas Land & Investment Ltd.  declined 2.5% in Hong Kong. “The reduction of the reserve requirement ratios will be beneficial to the mainland [Chinese] banks and consumer stocks. [Offshore] funds are buying the … mainland banks because they believe the RRR will be reduced [as early as] next week,” DBS Vickers’ Lai said.

China’s currency is not about to end its appreciation trend against the U.S. dollar, nor are investors pulling increasing amounts of cash out of the country, according to new research which argues that the two assertions will likely be debunked in coming months.

Capital flowing out of China reached a peak in September, but those outflows have fallen sharply in recent months, or even swung into reverse, according to a Bank of America Merrill Lynch study released Friday.

Forex-position figures that appear on the central bank’s monthly statement are widely quoted by the media and market players as indicating the size of investment funds flowing into and out of China.

Recent changes that bolster the role of the Yuan as a currency of settlement in international trade have rendered the data point “misleading,” according to Lu, who labeled the resulting distortion to some of the central bank’s monthly statistics an “unintended consequence” of the freer Yuan.

After reworking the data to filter out the distortion, Lu calculated that funds flowing out of China reached a top of $34 billion in the July-to-September quarter, likely peaking during September.

Helping explain the move, September coincided with heightened concerns over a hard landing in China, a rise in fears over the euro-zone crisis, and a medium-term low for the Hang Seng China Enterprises Index, which tracks Hong Kong-listed mainland Chinese firms a preferred channel for foreign fund managers investing in China-focused stocks.

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