A cheaper yuan is expected to aid exports for the world’s second-largest economy but also underlined concerns about the current status of the Chinese economy.
While they wait for stocks to recover, investors are finding alternatives in Chinese real estate and overseas markets. The move by the People’s Bank of China helped offset fears that the government is considering scaling back its massive rescue effort for the country’s stock markets which it put in place just last month.
“Asian markets have been flashing red today over concerns about further large declines in the Chinese stock market and uncertainty over the outcome of the release of the Fed minutes”, said Angus Nicholson at IG Markets. (1225.HK) plunged 23.4%, after the toys and medical products maker announced a share sale at deep discount. The Stoxx Europe 600 was 0.8% lower midway through the session.
U.S. stocks followed world markets lower Tuesday after China’s main index suffered its biggest tumble since late July.
Seoul closed down 0.86 percent, or 16.88 points, at 1,939.38, while Sydney gained 1.45 percent, or 77.05 points, to 5,380.20. The S&P 500 has dropped 1.7%, while the Nasdaq is down 1.6%.
The yuan’s retreat to the weakest level since 2011 is increasing the allure of assets denominated in foreign currencies, according to Steve Wang, the chief China economist at Reorient Financial Markets Ltd.in Hong Kong.
Since turmoil hit Chinese markets in June, Beijing has sought to correct a sharp fall in share prices by restricting the number of stocks that can be traded and by leaning on state-backed bodies to snap up shares. “Of course, this has merely exacerbated the dismal form of the FTSE’s oil and mining stocks”.
Oil resumed falling after a brief bounce on Tuesday.
US crude inventories rose by 2.6 million barrels last week to 456.21 million, the government’s Energy Information Administration said.
On Wall Street, the Dow Jones Industrial Average was down by more than 200 points and the gloomy sentiment washed over the Atlantic to add to the already-downcast mood in London.
Vietnam devalued the dong for the third time this year, with the central bank weakening its reference rate by 1 per cent. It also increased the scope for fluctuations to 3 per cent on either side, after doubling the range on August 12. U.S. crude settled down 3 percent at a new 6-1/2-year low as a big rise in U.S. stockpiles intensified worries over a growing global glut. Additionally, earnings per share for fiscal 2016 are now expected to be in the range of $4.40 – $4.70, down from the previous guidance of $4.70 – $5.05. “Investors are repatriating funds and staying out until the dust settles”. “The market may continue to fluctuate until the U.S. Federal Reserve raises interest rates“. With the earning season winding down, all eyes are on the Wednesday minutes of the Fed’s latest meeting.
Robert Parkes, a strategist at HSBC, said he believed the pessimism surrounding China was overdone and the picture would brighten in the coming months.
Some experts had been expecting China to boost exports in a bid to shore up growth.