The offshore yuan rose toward a two-month high after China reported a smaller-than-estimated decline in its foreign-exchange reserves, a sign that capital outflow pressures are easing.

The stockpile shrank $43.3 billion in September, less than the $57 billion drop predicted in a Bloomberg survey of economists. The hoard, still the world’s largest at $3.51 trillion, fell by a record $93.9 billion in August after a shock yuan devaluation spurred unprecedented outflows and prompted the central bank to sell dollars to prop up its exchange rate.

“Today’s data suggest concerns about capital outflows are overdone,” said Larry Hu, Hong Kong-based head of China economics at Macquarie Securities Ltd. “With stabilized expectations on the renminbi and more companies getting their positions hedged, the pace of decline in the reserves should slow.”

The yuan, known officially as the renminbi, rose 0.25 percent to 6.3398 a dollar as of 1:56 p.m. in Hong Kong, near a Sept. 30 level of 6.3332 that was the strongest since the Aug. 11 devaluation. The offshore yuan last week erased its discount to the Shanghai rate, which exceeded 2 percent on Aug. 12, amid speculation the central bank was selling dollars. Financial markets on the mainland will reopen on Thursday after a week-long holiday.

David Fuller's view

Check the graph in this report.  Yes, China’s reserves have fallen approximately 12.5% since mid-2014 but they are still enormous.  

The reopening of China’s mainland stock market indices on Thursday is nervously awaited.  However, in a case of the tails wagging the dogs, the recent performances of Hong’s Hang Seng Index and China Enterprises (H-Shares) should encourage mainland investors to venture back into the China Shanghai A-Shares and the Shenzhen Stock Exchange Composite Indices.