Asian markets slide to 3-month low after China cuts market trading, devaluates yuan
Asian markets fell to a three-month low on Thursday after Chinese shares tumbled more than 7% and triggered a market closure while Beijing accelerated a devaluation of the yuan, raising the spectre of a regional currency war.
The MSCI index of Asia-Pacific shares, which provides a rough overview of market performance across the region, dropped 1.4% to its lowest level since September.
Australia’s S&P/ASX 200 index lost 2% while South Korea’s Kospi index dropped 1%. Markets on the Pacific had already been jumpy after North Korea’s hydrogen bomb test on Wednesday.
The Thai SET fell 24.7 points, nearly 2%, at the opening of trade and stock indexes in Singapore and Taiwan lost more than 2%.
China’s new automatic “circuit breaker” mechanism tripped 30 minutes after trading opened on Thursday, the second time this week that the device, intended to bring stability to the markets following steep drops, has been deployed.
Beijing responded by speeding up the devaluation of the yuan to its lowest level in nearly five years, a move aimed to boost the economy by making Chinese exports cheaper.
The People’s Bank of China set the official midpoint rate on the yuan at 6.5646 per dollar, the weakest since March 2011.
But the move puts pressure on China’s Asian neighbours to follow suit and keep their exports competitively priced, analysts warn, a spiralling currency battle that led in part to the Asian financial crisis in 1997.
“When we look at 2016, the outlook for the yuan is a major concern not only for China but for all countries,” the chief Asia economist for IHS Global Insight, Rajiv Biswas, said. “Because obviously if the yuan goes down significantly against the US dollar, you are back in a world of currency wars.”
An index that tracks Asia’s 10 most-used currencies excluding the yen, the Asia Dollar Index, fell 0.3%.
The Australian dollar, often used during trades with China, fell by 50 US cents to a two-month low and the New Zealand dollar plunged to a one-month low of $0.6615 to the US dollar.
