The CSI300 index and Shanghai Composite primary market both rose 2% on Friday, while the Shenzhen Composite secondary market index was up 1.1%. “We have a lot of fear about what is going on in China”, said Joe Saluzzi, co-head of trading at Themis Trading. The circuit breaker, which only came into effect on January 4, came under fire for kicking in too soon with its initial pause in trading and then encouraging a rush to sell before a second trigger halted the day’s trade permanently.
Advertisement
The People’s Bank of China (PBOC) set the yuan reference rate at 6.5636 against the dollar, up 0.02 percent from Thursday’s fix and higher than the yuan’s closing rate of 6.5929 in onshore trading on Thursday.
During the first week of 2016, China stocks lost roughly 10 percent in what was their worst weekly performance since the market crashed in August past year.
Marc Ostwald, market strategist at ADM ISI, said: “China’s authorities have clearly bitten far more than they can chew in their markets and economy reform efforts, with a clear sense that they are at best fumbling in the dark emerging”. The Chinese Stock Index (CSI) 300 rose by 2.8% gaining 3,384.99 as the morning session ended and the Shanghai Composite Index (SCI) rose by 2.4% gaining 3,199.56 points.
Jasper Lawler, market analyst at CMC Markets, said: “China’s removal of counter-productive circuit breakers, state buying and a rise in the yuan helped prevent another stock market rout and alleviated concerns that the central bank would continue the rapid devaluation of the currency”.
DOLLAR BOUNCE: The dollar firmed further following the figures as traders priced in the prospect of more interest rate hikes: The euro was down 0.8 percent at $1.0825 while the dollar was 0.6 percent stronger at 118.51 yen. This means they are allowing the currency to be more market-driven. Chinese stocks were volatile Friday and other Asian markets rebounded after a plunge in Chinese prices.
For companies looking to export to China, the devaluation of the yuan is also bad news: It makes their products more expensive when brought ashore, putting them at a competitive disadvantage.
In other Asian markets, Hong Kong’s Hang Seng advanced 0.6 per cent to 20,453.71 and South Korea’s Kospi added 0.7 per cent to 1,917.62.
The Chinese central bank also took steps to strengthen the yuan after the currency’s weakness was taken as a sign of problems for the economy.
This is another hit for China to gain back economic confidence as the turmoil disrupted global markets.
At one point on Thursday, Brent fell more than 6 per cent to $32.16 – its lowest level since 2003.
Advertisement
The lowered yuan forecast is consistent with “our view that 2016 will be a year of continued “bumpy deceleration” and significant policy easing in the Chinese economy, and that the potential for greater CNY depreciation remains a large source of uncertainty”, the analyst team, led by Goldman’s chief Asia-Pacific economist Andrew Tilton, said in the note. Investors are also alarmed by the steep decline in China’s currency. Japan’s Nikkei 225 index is down 6.7 percent.
