– Reuters picBEIJING, Jan 7 ― Chinese markets were suspended today for the second day this week after they fell more than seven per cent, leading an Asia-wide sell-off as Beijing weakened the value of the yuan currency by the most since August.
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The Shanghai Composite Index was down 1.6% at 3242.74, after a 6.9% slump Monday due to concerns about a weakening manufacturing sector and a falling yuan.
However, he argued, “while traders remain uneasy about China, the broader outlook for emerging markets is more optimistic (or at least less pessimistic)”.
The losses had come as investors were spooked by the Friday expiration of a ban on selling stocks for certain investors, also announced in the summer.
A stronger dollar will be a headwind for USA manufacturers and businesses that sell products overseas.
The S&P 500 made its worst start to the year in 15 years, shedding 1.5% at 2,013 while the Dow Jones Industrial Average declined 1.6% to 17,149.
After the People’s Bank of China again fixed its onshore rates for the yuan lower CNYFIX=SAEC, the less-regulated offshore rates for the currency fell more than 1 percent against the dollar to a record low of 6.7315 in London trade CNH=D3.
While the PBOC wishes to let the yuan rate be more market driven – hence its new rate fixing structure – the aggressive devaluations appear to be the primary trigger for these wild market swings.
At 4:30pm, onshore yuan was quoted at 6.5575 to $1, down 0.58 per cent from the same time on Tuesday. Much of the actual buying has been carried out by China’s so-called “National Team”, a group of state-backed investors, brokerages and funds that have purchased shares at the government’s behest.
China’s central bank lowered its reference rate for a seventh day, devaluing the yuan against the greenback by about 0.3 percent. The euro was up 0.4 percent at $1.0824 with the dollar on the back foot.
Investors were spooked by the rapid weakening of the Chinese currency, which fell nearly 2.5 percent in just three days.
This reignited fears in some quarters that China was aiming for a competitive devaluation, pushing other Asian currencies to multi-month lows.
Some see the tactic as a desperate attempt by China to shore up its economy, prompting concerns that the world’s second biggest economy could be even weaker than imagined.
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It also makes commodities denominated in U.S. dollars more expensive for Chinese buyers, which could hurt demand and thus further depress commodity prices.
