Asian stock markets drop as China devalues
Asian stocks have fallen sharply and the Chinese currency hit fresh four-year lows as concern about crude oil prices and an expected US rate rise by the Federal Reserve later this week kept investors on edge.
European markets seemed likely to follow suit after the People’s Bank of China on Monday continued guiding the yuan lower, setting official trading midpoint with the US dollar at its weakest since July 2011.
China’s decision to loosen its grip on the yuan and allow slow but steady depreciation in recent weeks has added to concerns that the world’s second-biggest economy may be more fragile than expected.
The move, which followed an announcement on Friday of a shift towards a trade-weighted basis instead of exclusively tracking the US dollar, will also heighten concerns that China is prepared to intensify a currency war with rival regional economies in order to keep its huge export sector competitive.
More encouraging Chinese economic data released over the weekend did little to improve the mood on stock markets as the backdrop of a shakeout in commodities markets and fitful global growth continued to drag on confidence on Monday.
Japan’s Nikkei was down 1.86 per cent in afternoon trade after initially falling more than 3 per cent to a six-week low, while South Korea’s Kospi retreated one per cent.
Australian shares dropped 1.37 per cent as the rout in commodities continued to hit the country’s large resources sector. The benchmark ASX/S&P 200 index fell below 5,000 points with more selling of mining stocks. BHP Billiton, the world’s largest mining company, lost another two per cent to a near-10-year low of $16.83.
In addition, Suncorp, the insurance company, issued a profit warning on concerns about mounting payouts for weather-related claims, building costs and the weaker Australian dollar.
The mainland Chines emarkets provided a rare bright spot, with the Shanghai Composite up 0.54 per cent at the lunch break.
European futures trading pointed to more falls on Monday morning. The FTSE100 was expected to open 22 points lower at 5,930 points, while the Dax in Germany was seen opening 18 points down at 10,322.
Much of the glut in oil which has been concerning investors in recent weeks can be attributed to excess supply rather than weakening demand, analysts said.
But the focus was turning on Monday Asia to whether markets will be able to withstand a US rate hike, which is excepted to be announced after the Federal Reserve’s policy review on Wednesday evening US time.
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