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 available only to foreign investors suffering the brunt of the decline.

The sell-off sent the Shanghai B-share index of stocks available 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 investors, lost 0.3% to 1,401.85.

In Shanghai, the B-share index has dropped 11.3% in the past week and is down 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 insisted 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--nearly 5% less than the official rate and down from 8.6 last week.

In Shenzhen--China’s other major marketplace--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.

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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