Yuan Troubles Pull China Lower
Alvexo | Jan 11, 2016 15:43
The severity of events in Chinese markets combined with the historical significance of global economic health of China has incited yet another large capital escape from equities upon the open today. Sentiment at an all-time low spurred a selloff of -5.03% in the China CSI 300 index this morning, as worries about the valuation of the yuan amid a global currency war took hold. The rapid devaluation of the currency after the initial crash last week was reversed by People’s Bank of China amidst cries that the yuan was too undervalued and further contributed to stock troubles. What China may need is severe intervention in the form of monetary stimulus or Central Bank investments into the malnourished economy. Though market participants are very much in favor of this solution, Premier Li Keqiang announced that the Bank is against introducing such measures and would rather place its financial strength behind programs like the Silk Road initiative, likely to give comparatively larger momentum to domestic economic health.
The enormity of the situation is even touching markets that are not even slightly reliant on China as a trade partner, with economies around the world losing the fluidity in their connections with one another. Major players like the United States and the Euro Area are strongly affected by China; an equally significant economy that when slowed down drags with it the whole team. With huge indices like the S&P 500, Dow Jones Industrial Average, NASDAQ Composite, DAX and French CAC 40 all mirroring the movements in Chinese equities since the beginning of the fall, it is no surprise that Asian markets are equally as affected. One of the most hurt is metals, however, as copper in particular is very much tied to China’s economy. The last session saw the metal fall past the $2.00 point, and things are not looking up due to increased expectations of interest-rate cuts from the PBOC.
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