The Chinese yuan gained against the major currency during the session as it was increasingly apparent that risk takers returned. Suggestions of a shift from risk aversion has been the resurgence in emerging market investments, along with Chinese based assets. As a result, the underling yuan advanced to 7.5604 against the US dollar after a stronger than expected fixing by the People’s Bank of China. Against the British pound, the Chinese yuan gained to 15.22 while rising against the Euro to 10.32. Boosting the speculative bid tone in the Chinese currency were continued gains by the benchmark CSI 300.

Banking Sector Begins Reporting Subprime Exposure
Following statements from government agency investment groups and their exposure to US subprime concerns, China Construction Bank stated it’s own exposure during the overnight session. China’s third largest bank reported that it currently holds $1.06 billion in subprime securities. The statements join two of the other three largest lenders in country in disclosing information of this nature. Although rather large, the percentage is considered some what smaller and will likely have “limited” impact on full year results by CCB.

Merkel Pushes For “Game Rules” Following Spyware Identification
Making a diplomatic trip to China, German Chancellor Merkel questioned China’s intentions shortly after it was revealed by a magazine that Chinese military Spyware was effectively installed in German computers. The efforts have sparked speculation that hackers in China may be involved in spying on Germany, an allegation that the Chinese government has vehemently denied. “We are willing to maintain cooperation with the German government and take firm and effective action to prevent all hacking acts that threaten computer systems,” commented Chinese Premier Wen Jiabao at a briefing following initial talks. The comments were in response to initial statements from Merkel citing that both countries “must respect a set of game rules”. Aside from the incident, both leaders signed a memorandum of understanding involving Germany’s ThyssenKrupp Technologies AG and a sizeable investment in a local plant.

Regional Equities Ride Shanghai Stock Market Support, Benchmark Index Hits Record
Stocks in Shanghai vaulted to another record close as banking sector stocks advanced amid higher earnings releases. As a result, the Shanghai Composite advanced to remain above the 5,000 mark for the day, adding 42.45 points to 5,150.12. Notably, overall market optimism was led higher by shares in China Life Insurance. The world’s biggest insurer by market value rose on news that first half profit more than double as stock market returns skyrocketed. Net income for the first six months of the year advanced to 23.3 billion yuan, higher compared to last year’s 8.97 billion yuan. Adding to optimism for the stock was the recently reviewed policy by government officials, which will likely allow insurers to double their investments out side of the mainland economy. As a result, stock in the China Life jumped 1.6 percent on the China exchange, rising to 99.27 yuan. Incidentally, Hong Kong and Singapore markets were able to capitalize on the support, as both regional benchmarks were subsequently led higher. Notably, Hang Seng shares were led to a record as China Construction Bank Corp. helped overall sentiment by reporting soaring half year profits. As a result, the Hang Seng Index added 655.84 points to close at 23,577.73, up 2.9 percent in the overnight. The Straits Times Index advanced by 1.29 percent to close 43.60 points higher at 3,413.05.

Richard Lee is a Currency Strategist at FXCM.