China’s new normal. Guess what, China is not devaluing the yuan — at least not in the old-fashioned sense. It’s merely preparing the yuan for something more important: the eventual float of the currency — although it won’t be as free as the greenback or the Aussie or euro, but a more relaxed, almost market, float. Tuesday’s cut of nearly 1.9% was the start, yesterday’s 1.6% drop was the first adjustment to match market reaction to Tuesday. From now on, the yuan will move in larger leaps and slumps. Us Westerners had better get used to it, because this is the new normal.
Tuesday’s first cut was accompanied by changes to the rate-setting mechanism to try and make them more responsive to what happened to the value of the yuan in offshore markets, and whether it finished at the bottom or near the top of its 2% trading bands in the official market. And a statement made it clear yesterday’s move wasn’t a devaluation: “Looking at the international and domestic economic situation, currently there is no basis for a sustained depreciation trend for the yuan,” the People’s Bank of China said in the statement. In fact, the Chinese central bank and other authorities are known to have made extensive studies of the way Australia and a couple of other countries had moved from fixed to floating currencies. There will be baby steps, and missteps along the way, but the end game is a a floating yuan (within the normal bounds of Chinese government approval). The Chinese moves are just what the IMF and everyone else wants to see — a freer moving currency. So get used to the moves. In currency types, it’s a sort of crawling peg, unlike the Hong Kong dollar, which is a fixed peg to the greenback. — Glenn Dyer
Market maddies rule, again! By the time trading got to the US overnight, the fear and loathing of Tuesday and Wednesday in Asia had eased. Wall Street finished flat after being down heavily at the start (following the nervy sell offs in Europe and Asia, especially Australia). In fact, the turnaround in sentiment here yesterday afternoon was pretty amazing. If there’s another big move in the value of the yuan today in China, will the headless ones reappear and shout “sell, sell! China is devaluing!”? It’s no, it is in fact inching its way towards a float, a bit like Australia in the lead up to our floating of the dollar 30 odd years ago. And then there’s this morning’s editorial in The Australian Financial Review decrying China’s move and saying, “Devaluation not the best answer” . Well, it’s not, but it helps and it happens. That’s a bit like “We warn the tsar”, an exercise in editorial futility. And, if that’s the case for China, what about Australia, where our floating currency is now down more than 25% in the past 18 months or so? Now that’s a devaluation. — Glenn Dyer
Times change. Some of us can still remember when the big result of the interim- and annual-reporting season was the one issued by Telstra. Trees galore were slaughtered looking at, forecasting, reporting and gossiping about the telco, especially after the three-stage privatisation. There was a time when Telstra was the big weight in most investor portfolios, especially after the share price tanked in the wake of the second and third privatisation sales. But now it’s a mums-and-dads income stock, still attractive to global investors because of its size and liquidity, but in the “market darling” stakes, it’s been left behind by the big four banks and current glamour stocks such as CSL and Cochlear. This morning it released its 2014-15 results — dividends up, earnings up. Nothing to really justify anything more than a story or two or mention in a column. But some business media will again gratuitously kill some trees to analyse the results of a company that is basically all about mobility. So how did Telstra go in the June year? Well, a net profit of $4.23 billion in the year to June 30, and an increase its full year dividend to 30.5 cents a share, up a cent on the previous year. The most interesting move was the decision to re-open its dividend-reinvestment plan to shareholders for the final dividend of 15.5 cents a share. Now does that mean Telstra wants to start conserving cash? That is an interesting move, worthy of some dead trees. — Glenn Dyer