Another weaker yuan fix from the PBOC, again significantly weaker than where the USD/CNY closed on Wednesday, along with a 7% plunge in China’s stock market in less than 14 minutes of trade, rattled markets across the region, and sent investors scurrying to traditional safe havens such as gold.
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SHANGHAI China stocks fell 7 percent on Thursday after less than half an hour of trading, triggering a newly-introduced circuit breaker mechanism.
The yuan, also known as the renminbi, has drifted down by 6 percent against the USA currency since the central bank adopted a mechanism in August it said would make the state-set exchange rate more market-oriented.
The instability recalls last summer, when China’s stock market crash and a surprise devaluation of the yuan by Beijing sparked a global rout, and wiped out trillions of USA dollars in value from Chinese equities.
Investor anxiety over economic weakness and a possible glut of unwanted shares flooding the market have complicated Beijing’s efforts to withdraw emergency controls imposed after Chinese stock prices collapsed in June.
Today’s trading was the shortest trading time in the history of China’s capital market history, Xinhua news agency reported. The offshore yuan rate hit a record low of 6.7600 to the dollar, before erasing its losses after suspected intervention by authorities.
The Shanghai benchmark has dropped 12 percent so far this year, which is barely a week old.
The country’s central bank also set its daily reference rate against the dollar at its lowest level in nearly five years, according to Bloomberg News.
“[Problems arise] when you have these measures put in place and you don’t take them off when you say you’re going to take them off”, said James Hughes, chief market strategist at GKFX, based in London”.
It was the second time China’s market triggered the circuit, which launched on January 1. If it subsequently falls by 7 percent, trading is suspended for the rest of the day.
Analysts said the first suspension is triggered too quickly, and China’s army of small investors use the cooling off period to line up additional sell orders.
Another index, the CSI 300, fell 7.2 percent. The ban applies to investors holding 5 percent or more of a company’s shares. The Nasdaq composite index fell 69 point, or 1.4 percent, to 4,766. Oil prices plunged below $34 a barrel – the lowest settle since 2008.
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“It had become a bit of a self-fulfilling prophecy and people had started to worry it was exacerbating the falls in Chinese stocks”. The Australian dollar fell 0.6 percent.
