Foreigners Go Home as Faith Ebbs in Chinese Stocks, Yuan

China continues to insist it won’t devalue its currency, but many foreign investors don’t buy it.

On Tuesday, Chinese stocks continued to dive on currency worries, with shares owned by foreign investors suffering the brunt of the decline.

The sell-off sent the Shanghai B-share index of stocks, which are those available only to foreign investors, down 3.5% to a record low of 32.81.

The Shanghai A-share index, which tracks stocks available only to Chinese, lost 0.3% to 1,401.85.

The Shanghai B-share index has dropped 11.3% in the last week and a stunning 41% year-to-date.

By contrast, the A-share index still is up 11.4% this year, which suggests that Chinese investors aren’t nearly as pessimistic about the outlook as foreigners.

Then again, foreigners would have the most to lose if a currency devaluation were to occur.

Black-market traders said people are shunning stocks and buying U.S. dollars instead on fears that the Chinese government may devalue the yuan.

The government has pledged that it won’t.

But slowing Chinese export growth and rising competition from China’s Southeast Asian neighbors--most of whom have suffered steep devaluations over the last year--could force Beijing’s hand, some analysts say.

The yuan’s going rate on Shanghai’s black market weakened to 8.68 per U.S. dollar on Tuesday--nearly 5% less than the official rate and down from 8.6 last week.

In Shenzhen--China’s other major market--the B-share index plunged 2.8% to 68.62 on Tuesday, the lowest since May 1996. The index is down 30.7% year-to-date.

New York Stock Exchange-listed Chinese stocks are sinking in tandem. Issues hitting 52-week lows on Tuesday included Guangshen Railway (ticker symbol: GSH), down 25 cents to $4.88; Jilin Chemical (JCC), down 50 cents to $6.25; and Shanghai Petrochemical (SHI), down 6 cents to $8.81.

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Trouble in Shanghai

The Shanghai B-share stock index--which tracks Shanghai-listed stocks available for investment by foreigners--fell to a record low Tuesday on fears that China may eventually devalue its currency. Monthly closes and latest for the index:

Tuesday: 32.81

Source: Bloomberg News