The People’s Bank of China devalued the yuan by almost two per cent last Tuesday which rattled the regional currencies including the ringgit.
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Parts of the products from the regional market are assembled in China before they are exported to the US or Europe. The CSI 300 infrastructure index fell 8.4 percent, the energy index dropped 6.1 percent, and the real estate index tumbled 7.3 percent despite the data showing Chinese home prices rose for the third month in a row in July.
The Shanghai Composite Index closed down 6.1 percent at 3,749.12 points in its biggest daily decline since July 27, snapping a three-day winning streak.
The People’s Bank of China has sought to reassure that the yuan is not set for sustained devaluation, but investors are fretting over further currency weakness alongside fears over economic slowdown and worries the government could scale back large-scale support for stock markets. It is believed that the dollar will rise further as the Yuan displayed signs of stability for now.
Crude oil, another market churned last week by China’s shock move and its potential impact on demand for commodities, continued to struggle in the wake of global oversupply concerns.
“There is a gradual strengthening in the US housing market with positive implications for employment and economic growth if sustained”, Matthew Sherwood, head of investment strategy at Perpetual Ltd.in Sydney, which manages about $22 billion, said by e-mail.
On Wall Street, stocks recovered from early steep losses to end mostly higher overnight as anxious investors grappled with the ripple effects caused by another drop in China’s currency.
China’s central bank last week devalued the Yuan; central to the move was a bid to have the yuan accepted by the worldwide Monetary Fund into its basket of reserve currencies, placing the yuan on par with the dollar, euro, yen and British pound, and boosting China’s global stature.
“Some 76 per cent of Australia’s exports are direct to Asia, and the Australian dollar is often used as a proxy for Asia”. Wal-Mart’s shares slid after the retailer cut its earnings forecast for the year, while renewed concerns over the strength of China’s economy weighed on world markets. The rouble hit a six-month low, Malaysia’s ringgit held near a 17-year low and Turkey’s lira fell below 2.86 per dollar for the first time ever. Malaysian stocks suffered a 1.5 percent fall and the ringgit was stuck near a 17-year low.
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The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was little changed at 2.58 percent, data compiled by Bloomberg show.
