No Need To Over-react to Yuan Decline - Guan Tao

Market participants should not over-interpret or over-react to the depreciation in the yuan against the U.S. dollar, wrote former State Administration of Foreign Exchange official Guan Tao in an article published by Yicai.com on Monday. He argued a robust balance of payments surplus and more stable external liabilities in the private sector increased resilience to capital flow shocks and exchange rate fluctuations. The fall in the yuan may have limited impact as the current correction has been mainly driven by the offshore market, while domestic FX trading volumes remained tame in the second half of August amid relatively stable market expectations, wrote Guan, now chief economist at BOC Securities. Previous sharp depreciations of the yuan often coincided with falls in Chinese stocks, but northbound trading on the cross-border Stock Connect saw net purchases in the second half of August, Guan added.