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China's Second Rating Cut May Prop Up Mainland Markets

Posted by Joseph Trevisani on Sep 22, 2017 10:21:57 AM

Yesterday's cut of China's sovereign debt rating by S&P Global Ratings may  end up benefiitng investors in mainland markets as the Beijing government strives to ensure stability.

.The one step reduction from A+ to AA- was the first for this U.S. company since 1999. Moody's Investors Services had dropped its soverign rating from Aa3 to A1  in May, then its first cut in nearly thirty years. 

Both have companies changed their outlook on the Chinese economy to negative from stable citing the soaring  domestic debt that has been used to fuel economic growth.

“Although this credit growth had contributed to strong real gross domestic product growth and higher asset prices, we believe it has also diminished financial stability to some extent," S&P said. 

Initial reaction in the currency and equity markets was mildly negative. The off-shore yuan (CNH), traded in Hong Kong, slipped from 6.5634 to 6.6040  It has since recovered to 6.5729 (10:06 am EDT).  The on-shore yuan (CNY), traded in Shanghai, fell from 6.5700 to 6.003 then returned to 6.5899, (10:11 am EDT).

The Shanghai Composite shed about 1.25 percent from3,377.70 to 3.335.23 but it was trading at 3,35205 at 10:15 am in New York. 


Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Thomson/Reuters

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