HONG KONG (Reuters) – Asian stocks retreated on Tuesday as investors booked profits a day after China’s weekend decision to give its currency more flexibility triggered a risk rally.
China
China’s move on the yuan had set off optimism that a stronger yuan would lift its purchasing power for foreign goods such as commodities, a boon to the global economy given the nation’s vast appetite for raw materials.
But that euphoria was checked as investors took a more considered view on the impact the move would have on economic fundamentals.
“The potential boost that might be given to consumption is likely to be subtracted from what will happen to exports,” said Emil Wolter, head of regional strategy at Royal Bank of Scotland.
“But the bottom line is that the market is making a huge deal of an insubstantial occurrence,” he said, adding that the yuan move had triggered a rally because it came after stocks registered their worst May in 12 years and at a time when there were large short positions.
“Sell in May and go away” is an old stock market adage which refers to the seasonal weakness in shares.
Beijing set the mid-point for the yuan’s daily trading range at a 5-year high on Tuesday, which gave the markets a brief respite from the selling but kept most indexes in the red.
On Tuesday, the MSCI index of Asia Pacific ex-Japan stocks was down 0.7 percent, hovering around the day’s lows.