After Thursday’s market plunge, the securities agency tightened that restriction by saying they can unload only the equivalent of 1 percent of a company’s shares over the next three months. This caused the dollar to appreciate, meaning that the yuan, which was de facto pegged to the dollar, rose along with it. Meanwhile, the investment capital that China was pumping into its own economy as part of its post-2008 model found its way into the domestic stock market, blowing a massive speculative bubble that peaked in summer 2015. Throughout the week, worries about China’s economy and shocks to its markets have canceled out positive news from the USA and Europe.
Advertisement
Trading on the Shanghai and Shenzhen bourses stopped early on Thursday after shares tumbled seven percent within the first 30 minutes of trading, triggering the circuit breaker mechanism. Stocks rose in Taiwan and were mixed in Southeast Asia. The same pattern held in the U.S. In its monthly jobs report, released before the stock market opened, the Labor Department said U.S. employers added 292,000 jobs in December, far more than economists had forecast.
“They realized this, which is good news”. The new rules take effect on January 9, 2016.
Investors still face plenty of restrictions in how they trade.
Foreigners offloaded a net 756 billion won (US$631 million) worth of local stocks this week, and institutional investors sold a net 78.3 billion won. Curbs on trading in what was the world’s most active index futures market have cut volumes by 99 percent from the peak, making it harder to implement hedging strategies.
The clearest indication of investor sentiment about the renminbi lies in the currency’s value in unrestricted trading here in Hong Kong.
Some investor calm was restored, however, after Beijing suspended a circuit-breaker on its stock market that had stoked volatility rather than stemming it. “The risks seem to have increased”. Thursday’s decision also sparked fears of a region-wide rush to devalue currencies.
The yuan firmed in early trade, with dealers suspecting that the central bank intervened through state-run banks to support its currency, which could help allay fears that any depreciation would be allowed to continue at pace.
The People’s Bank of China, working through Chinese state-earned banks, prevented a ninth successive daily drop in the fall of the yuan by offering U.S. dollar liquidity at an exchange rate of around 元6.59.
In Friday trading at about 1030 GMT, London’s benchmark FTSE 100 index was up 0.5 percent compared with Thursday’s close. A surprise devaluation in August roiled global markets on concern the move would trigger a currency war and exacerbate deflationary pressures in developed nations. The Standard & Poor’s 500 index lost 21 points, or 1.1 percent, to 1,969.
Beijing has gradually loosened the reins on the tightly controlled currency, pledging to let market forces have greater influence on the exchange rate.
That triggered further selling in the offshore yuan, which was trading at 6.6770 per dollar, a hefty discount of almost 2 percent against the onshore rate of 6.5465 and closing in on its record low, adding to a spread that is encouraging capital to flow out of the country.
Advertisement
Matters came to a head this week when China’s problems set off a global stock market rout.
