Yuan revaluation boosts Chinese companies' shares in Hong Kong

One month after China revalued its currency, hopes for further appreciation of the yuan remain strong, attracting inflows of "hot money" into Hong Kong and pushing up the territory's Chinese stocks.
Hong Kong assets are favoured by speculators who regard the local currency as a proxy for betting on a gain of the yuan.
Although the city's de facto central bank, the Hong Kong Monetary Authority, had modified the local peg slightly in an effort to curb speculative fund inflows, it has been unable to fend off speculators.
Better known as H shares, China enterprise stocks in Hong Kong have benefited from China's move, outperforming other sectors despite surging oil prices and concerns over rising interest rates that have impacted the benchmark Hang Seng Index.
The Hang Seng China Enterprises Index, which tracks 40 mainland companies, closed at an eight-year high Monday up by 1.1 percent at 5,539.39 on the day.
The index has risen by 10 percent in the past three months as speculation on a yuan appreciation drove the market higher. The Hang Seng Index rose 9.82 percent over the same period.
"The speculation of a further yuan speculation was good for the H shares. A lot of funds have come into Hong Kong," DBS Vickers (Hong Kong) director Peter Lai said.
"It's all about supply and demand. If there is a chance of it going up, there will be people there betting for it," he said.
On July 21, China bowed to intense pressure from trading partners, led by the United States, and revalued its currency by 2.1 percent.
It also scrapped the yuan's 11-year-old peg to the US dollar in favour of a trade-weighted basket of currencies dominated by the greenback, the euro, the yen and South Korea's won.
The new managed float for the yuan theoretically allows for a 0.3 percent daily shift in either direction to what the market deems fair value.
The yuan ended the first month of trade Friday at 8.1047 to the US dollar, a 0.065 percent change compared to the new level of 8.11.
The US government had vociferously complained that under the old system Chinese exports enjoyed an unfair advantage on world markets from an undervalued yuan.
Although China's move had solved the initial political pressure from the US as well as Europe, pressure for further revaluation is expected.
Amid growing expectations that Chinese regulators will allow the yuan to further appreciate H shares have been benefiting.