Chinese stocks nosedived Thursday, triggering their second daylong trading halt this week and dragging down global markets, Asian currencies and oil prices as investors fretted about the world’s No.
Chinese stocks nosedived Thursday, triggering their second daylong trading halt this week and dragging down global markets, Asian currencies and oil prices as investors fretted about the world’s No. 2 economy.
The Shanghai Composite Index tumbled 7.3 per cent to 3,115.89 bef-ore “circuit breakers” suspended trading for the day. The Shenzhen Composite Index for China’s second smaller stock exchange slumped 8.3 per cent to 1,955.88. Major European indexes dropped around three per cent while Wall Street opened sharply lower.
Measures introduced by the Chinese government last year to prop up share prices after a meltdown in June are being gradually withdrawn, leading to volatile trading. Investors are also unnerved that Beijing has allowed the yuan currency to weaken, a possible sign the economy is in worse shape than thought.
Angus Nicholson, market analyst at IG in Melbourne, Australia said the sell-off this week only underlines that the Chinese government’s intervention last year to support the market had delayed the inevitable slump. “Many people are asking how far Chinese equities could fall,” he said in a market commentary.
“The great concern for global markets is that the dramatic pace of the currency devaluation seems to indicate a far greater weakness in the Chinese economy than is easily perceivable in its publicly released statistics,” Nicholson said.
The latest slump comes after China’s government guided the yuan lower over several days, even as its foreign currency reserves, the world's largest, posted their biggest annual drop on record in 2015.
Foreign exchange reserves fell $512.66 billion in 2015 to $3.33 trillion, adding to worries about growing capital outflows that are dragging its yuan currency to multi-year lows.
Nearly two-thirds of the year’s drop came between August and December, hinting at the scope of the central bank’s attempts to stabilise the yuan after its surprise devaluation of the currency on August 11 panicked markets.
“The larger than expected drawdown on reserves ... indicates that long-term intervention is unsustainable,” which will likely lead to further falls in the yuan which in coming days, said Chester Liaw, an economist at Forecast Pte Ltd in Singapore.
Many economists worry that the rapid fall in forex reserves has effectively drained more liquidity from the Chinese banking system.
