Chinese markets were suspended Thursday for the second day this week after they fell more than seven percent, leading an Asia-wide sell-off as Beijing weakened the value of the yuan currency by the most since August.
Advertisement
After the International Monetary Fund inclusion, the country’s central bank signaled it may loosen the yuan’s peg to the United States dollar, measuring it instead against a basket of currencies of its major trading partners.
Yuan’s foreign exchange rate is softening in 2016, causing panic and questions to arise about the Chinese currency and its economic health.
One 23-year-old from Guangzhou who gave his surname as Hu said he had bought stocks on Monday afternoon, assuming that the circuit breaker would never be triggered, only to see it kick in well before the market close, locking in a 5pc loss. The latest ructions reinforce the belief that officials are struggling to reconcile contradictory demands: promoting market forces while preserving stability; and rebalancing the economy while continuing to meet increasingly unrealistic growth targets.
“The fear of the unknown has become the largest risk for RMB in the near term, despite China’s sizable current account surplus”.
The Australian dollar, often used by foreign exchange dealers as a liquid proxy for the yuan, fell half a US cent in a blink.
“China’s December foreign reserve, which is scheduled to be announced soon, is expected to shrink by about $23.3 billion compared to the previous month, showing a larger decline than in November”, said Cho Byung-hyun, an analyst from Yuanta Securities.
TOKYO – Asian shares fell on Wednesday and most emerging currencies retreated as China allowed the yuan to weaken further, stoking fears about its slowing economy, while a North Korean nuclear test heightened geopolitical tensions.
If there was any doubt about the growing economic influence of China on the the global economy and markets, it surely disappeared in less than 60 short minutes today.
U.S. Treasuries gained from a consequent flight to quality.
Equities markets were also notable and immediate casualties, especially domestic Chinese shares.
MSCI’s broadest index of Asia-Pacific shares outside Japan.MIAPJ0000PUS dipped 0.1 percent, brushing its lowest level since late September.
Wall Street also had a gloomy session, with the S&P 500 .SPX losing 2.4 percent on Thursday, with 40 percent of the stocks in the benchmark trading 20 percent or more off of their highs, the definition of a bear market.
Big global banks forecast a 7 to 10 percent weakening of the yuan over the next 12 months, but it has begun the year with a decline of nearly 2.5 percent in just three days.
The heavy losses on the local main board Thursday resulted from a move made by China to halt its equity trading after share prices on the mainland market took a beating to trigger the so-called circuit breaker mechanism and suspend trading that day. Korea is now undergoing a transition in leadership of its economy after the government appointed a new deputy prime minister for the economy to replace the outgoing minister Choi Kyung-hwan.
Advertisement
The country’s neighbors, including India and Japan, may respond through market intervention in case if a weaker Chinese yuan threaten their exports.
