Overall, in this first week, Chinese stocks lost about 10 percent, their worst week since the market crashed in the week ending August 21.
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The Chinese Government has been devaluing the yuan for the past nine days and there are calls in some quarters for a devaluation of 10 per cent.
The Chinese Stock Index lost approximately 12% in just four days of its trading in 2016 losing nearly all the gains it made in 2015. “A level of the currency that would make sense for the USA doesn’t make sense for China”, said Louis Kuijs, head of Asian economics of Oxford Economics. Because China is the second-largest economy in the world, those problems could spell trouble around the globe. China’s official services numbers for December are due out Tuesday, with consumer and producer price data scheduled for the end of the week. Many state-owned media outlets, including Xinhuanet and China Securities Journal, published commentaries, saying the market needed circuit breakers. USA stock markets might take a hit for a little while, but things will stabilize. It’s also nudging the country away from overdependence on manufacturing toward more reliance on services industries. “Maybe growth is slowing faster, and that’s something we’re concerned about outside China”.
NPR’s Jim Zarroli reports that China’s plunge “also sent the price of commodities down around the world”.
Still, Japan and Europe do a lot more business in China than the US does, and as a result, they face higher risks. Chinese authorities banned investors from betting against stocks, suspended trading in hundreds of companies and poured money into the market.
“It will not translate into a mortal threat to USA economic growth”, Mandel said.
Angus Nicholson, market analyst at IG, said: “The big thing [is] that we have seen the Chinese government rallying the “national team forces” in both the currency market and the equities market”, he said, as traders reported China’s state-owned banks intervening to prop up the yuan.
One market watcher urges investors to put the recent volatility in perspective. The gap widened to 7 percent only six minutes after transactions resumed. The Shenzhen Composite Index, which tracks stocks on China’s second exchange, added 1.05 percent to 1,978 on turnover of 437.4 billion yuan ($66.4 billion or 61 billion euros).
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“The scrapping of the circuit breaker system will help to stabilise the market, but a sense of panic will remain, particularly among retail investors”, Li Jingyuan, general manager at Shanghai Bingsheng Asset Management, told Bloomberg News. Recovery continues to elude the world more than seven years after the financial meltdown in 2008 and the subsequent monetary easing worldwide. This is not a welcome news since Saudi Arabia has cut its ties with Iran. “It’s going to be a volatile, turbulent year, and investors need to be prepared for that”.
