China’s market turmoil a symptom of other problems

Asian Markets closed mixed on Friday after Chinese investors pushed the stock market higher on Friday.

Chinese stock markets have cooled down on Friday after creating buzz in the global markets.

The Shanghai Stock Exchange Composite Index climbed 2% to 3,186 and the Shenzhen Stock Exchange Composite Index added 1.1% to 1,979. It was the second time this week that a mechanism installed on January 1 to limit volatility was triggered, and led Chinese authorities late Thursday local time to suspend the tool, saying the design had not worked as expected and instead was exacerbating stock market losses.

China’s stock markets have little connection to the rest of its economy but two sharp price declines this week have focused attention on the slowdown in the nation’s growth.

The Chinese central bank also took steps to strengthen the yuan after the currency’s weakness was taken as a sign of problems for the economy.

Singapore’s Straits Times Index was up 0.17 per cent to 2,734.46 as at 9:42 am, after falling more than 1 per cent at the open.

Asian shares headed lower ahead of the opening of trading in China, with investors nervous about another sell-off in the mainland markets.

“The poor start to the year clearly warns that global growth concerns remain, that commodity prices are still under downwards pressure and that volatility in investment markets will likely remain high”, said strategist Shane Oliver of AMP Capital.

But South Korean and Australian shares bucked the regional uptrend with the Kospi index down 0.1 percent to 1,901.92, and the S&P/ASX 200 index losing 0.4 percent to 4,992.10.

The gains pared losses for the week for both indexes to less than 10 percent.

They automatically stop trading in stock markets that drop or appreciate too sharply – a 15-minute break if the CSI 300 Index moves 5 percent from the market’s previous close, or a whole-day halt if it moves 7 percent or more.

Elsewhere in Asia, Japan’s Nikkei surrendered earlier gains to end the day down 0.4 per cent at its lowest closing price since September 30. Yuan traded offshore also climbed to 6.6799 against the dollar, having plunged to as much as 6.7511 on Thursday. The yuan firmed during the day, with dealers suspecting that the central bank intervened through state-run banks to support its currency, which could help allay fears that any depreciation would be allowed to continue. After the August devaluation, Beijing pledged to change the way it sets its daily reference rate, relying more on market-based rates. Worries about China have been fueled by soft economic data.

Investors were once again spooked by crude oil prices, which plunged to the lowest level since late 2003 on Thursday.

China stocks rose across the board on Friday, with the resources sector .CSI300MT surging more than 6 percent and energy shares .CSI300EN jumping over 5 percent.