Chinese stocks, yuan react to Moody's credit outlook cut

Chinese blue-chip stocks have fallen to a five-year low after Moody's cut the Chinese government's credit outlook rating. Yahoo Finance's Jared Blikre joins the Live show to share his observations on Chinese stocks and the yuan's reactions to various economic concerns in China.

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Video Transcript

BRAD SMITH: The China blue chip stocks tumbling overnight to five year lows as traders digested Moody's Tuesday cuts to its credit outlook. The warning is the latest setback amid a shaky year for the world's second largest economy. Jared Blikre joins us now with a closer look at the overnight moves. Hey, Jared.

JARED BLIKRE: Hey there, Brad. Well, we're looking at the US dollar strengthening just a little bit against the Chinese Yuan. It could have been worse.

As you said, Moody's downgraded the outlook. They didn't downgrade the debt, they just changed the outlook to negative from stable. What does this mean?

Well, let's just think a month ago, they did something similar to the United States. This was with respect to the United States triple-a rating, though, which is higher than China's A1. But I want to get back to that decision because it was made based on two factors.

Number one, the property sector has been an absolute disaster for the country, for the people. A lot of the population has historically saved there. And that's what their savings mean. Not necessarily in the stock market as it used to be, but in the property market, those savings have been decimated. And the Chinese government has been trying to issue directed stimulus into various pockets of the economy, especially the property sector to save it without inflating the general economy.

But here is where the problem comes. Here's the US dollar versus the Yuan, year to date, up 3.78%. That means the Chinese Yuan has weakened against the dollar by about 4%. A weaker Yuan means more capital outflows. That means, people don't want to hold it because it's becoming devalued.

And in September, that fevered pitch reached $75 billion. And that was the highest level in about seven or eight years. That was right in here at these highs.

Now, keep in mind, this is a weakening Yuan as we go up. Let's take a look at a max chart and see where that is historically. We are right at the highest highs going back to just before the financial crisis.

You can see, back in the day, there used to be a peg. No more. It was allowed to float within a band. But now, it is threatening to break northwards.

And so, for that, there are traders who are scared of losing money in the Yuan. They have bought dollars. Now, Here's the good news for the Chinese government-- this has not spooked stocks. Now, it did, initially, overnight. I was looking at the tape about 8:00 PM, there was some wiggles, and we got a downdraft in a lot of these stocks, like Alibaba, Pinduoduo, but they have since risen. So it looks like the market is kind of just shrugging this off.

And I do want to point out one thing-- despite the bullishness that we see this morning, I'm going to take these pre-market quotes off. These stocks have suffered. And let me just show you, over the last five days, there is a lot of red there. You take into consideration what's happened in the US, we've seen a lot of green over the last few days. It's been kind of risk on with-- except for the mega caps until yesterday.

So, all to be said, China's just operating on its own fundamentals. You cannot-- you cannot conflate the Chinese tech stocks with the US stocks. But on that note, I'm going to pivot. I did, kind of, hint that we did have a positive day yesterday in the mega caps, which we did.

Apple was up to 2.11%. NVIDIA up 2% as well. And I'll show you the pre-market quotes. We are bumping again. So, NVIDIA, up 1.32%.

NVIDIA was actually down about 10% from its recent high. You don't want to say an individual stock entered a correction, but that was a meaningful decline. But we have found support, and we're heading back up. So US tech, looking good. Chinese tech, on flimsy ground here.