Thursday, January 07, 2016

Global Assets Shaken by China Market Turmoil
Dan McCrum in London and Gabriel Wildau in Shanghai
Financial Times

Global markets were in tumult on Thursday after attempts by Chinese authorities to support share prices and the currency raised fresh questions about their ability to manage a slowdown in the world’s second-largest economy.

The Shanghai stock market was paralysed for the second time in four days by measures designed to prevent panic selling, after the onshore renminbi fell to the lowest level against the dollar since it was established in 2010.

Stock markets and commodity prices dropped around the globe, while leading government bonds and so-called haven currencies rallied in a replay of the August market turmoil prompted by a surprise currency devaluation.

Andrew Milligan, head of global strategy for Standard Life, said recent economic data and “a lack of joined-up thinking by policymakers” in China had prompted “a reappraisal once again about what the state of the global economy is at the start of 2016”.

Share trading in China was halted for the day after the benchmark Shanghai index dropped 7 per cent within half an hour of the market opening, the second time so-called circuit breakers were tripped this week. In four days this year the blue-chip CSI 300 index has lost 12 per cent.

The Chinese regulator announced late in the evening local time that it had suspended the circuit breakers altogether. Critics said the mechanism may have amplified losses, as investors rushed to exit their positions for fear of being trapped in a trading halt.

The plunge in Chinese stocks came after the central bank cut the daily fixing rate around which the renminbi is allowed to trade to the weakest in four years, and disclosed the scale of recent spending to prop up the currency in a sign of capital flight.

China’s forex reserves fell $108bn in December to $3.33tn, according to central bank figures released on Thursday — greater than the $87bn slide in November. Reserves peaked at $3.99tn in June 2014 but have fallen for 13 of the past 15 months.

China’s stock market meltdown reverberated around the globe this week, reviving memories of last summer’s rout and again shining a light on Beijing’s erratic policymaking.

The news rippled through global markets, with the oil price falling to a fresh 11-year low beneath $33 a barrel for Brent crude. In Japan, the Topix index of shares closed down 2 per cent, and European markets posted similar loses in a day of volatile trading. In New York, the S&P 500 fell at the open for the second day running.

Investors were rattled by further weakening of the renminbi, said Wang Jun, an analyst at China Securities in Beijing. “It was a panicked response to the forex market,” he said. “Accelerating exchange-rate depreciation could lead to liquidity problems. Valuations can’t help but take a pounding.”

Goldman Sachs estimated in September that the government had spent Rmb1.5tn ($234bn) to support the stock market in July and August, when the main index fell by as much as 45 per cent from its mid-June high. The “national team” owned at least 6 per cent of tradeable market capitalisation in the Shanghai and Shenzhen exchanges at the end of the third quarter.

Additional reporting by Ma Nan and Roger Blitz
Twitter: @gabewildau

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