Worst Week for Asia Stocks Since 2011 Tempered by China Rebound

China Stabilizes But Still Govt. Intervention
  • China's PBOC sets yuan fixing little changed from Thursday
  • Indexes in Japan, Australia fall while Shanghai rallies

A rally in Shanghai equities provided relief for investors at the end of the worst weekly slump for Asian stocks since 2011. Trading remained volatile, weighing on markets in Australia and Japan even as the yuan strengthened.

The MSCI Asia Pacific Index reversed an early decline after China refrained from another cut to the yuan’s reference rate, with the equities gauge rallying as much as 0.9 percent. The rebound evaporated within 15 minutes as investors grappled with the outlook for financial markets after more than $4 trillion was wiped from global stocks in the first four days of this week.

The People’s Bank of China set the currency’s reference rate little changed Friday, after a falling yuan raised concern a slowdown in the region’s largest economy is deepening. Chinese shares climbed as the government abandoned new circuit breakers blamed for exacerbating the worst-ever start to the nation’s equities, and state-controlled funds were said to buy equities.

“Nobody can judge what the Chinese government wants to achieve,” said Liu Yang, Hong Kong-based chairwoman of Atlantis Investment Management. “The direction at least is to try and stabilize the market. You need to take a wait-and-see attitude.”

The MSCI Asia Pacific Index fell 0.2 percent to 123.89 as of 12:08 p.m. in London, capping a 6.1 percent slide this week. Trading surged across the region, with volume for the Nikkei 225 Stock Average and Hong Kong’s Hang Seng Index more than 38 percent above the 30-day average.

Japan’s Topix index slipped 0.7 percent, for a fifth straight loss. The Nikkei 225 fell 0.4 percent, capping its worst week to start a year since 1997. Fast Retailing Co., which has the largest weighting on the Nikkei 225 gauge, lost 2.3 percent after cutting its earnings forecasts. Japanese markets will be closed Monday for a holiday.

The Hang Seng rose 0.6 percent, paring its decline for the week to 6.7 percent, and the Hang Seng China Enterprises Index of mainland firms trading in Hong Kong climbed 1.1 percent. The Shanghai Composite Index jumped 2 percent, trimming its weekly loss to 10 percent.

China has driven sentiment all week, roiling financial assets across the globe with a series of interventions in the stock and currency markets. Having introduced a circuit breaker Monday, the regulator scrapped it, confusing investors as to their next policy move and adding to investor concerns that authorities are improvising as they try to stabilize markets and shore up the economy.

China’s decision to suspend a stock circuit breaker makes sense, but the implementation and timing don’t, said Mohamed El-Erian, the chief economic adviser at Allianz SE. China realized that it had very tight limits, which did more harm than good, El-Erian said Thursday in an interview with Scarlet Fu on Bloomberg Television.

While gauges measuring expectations for future swings in markets soared this week, they didn’t approach levels seen in August when a surprise devaluation of the yuan roiled global markets. The HSI Volatility Index surged 46 percent in Hong Kong during the five days, and the Nikkei Stock Average Volatility Index also jumped 46 percent.

Australia’s S&P/ASX 200 Index slid 0.4 percent Friday and New Zealand’s S&P/NZX 50 Index fell 0.9 percent. South Korea’s Kospi index gained 0.7 percent and Taiwan’s Taiex Index rose 0.5 percent. Singapore’s Straits Times Index added 0.8 percent, its first advance in seven days.

The S&P BSE Sensex gained 0.3 percent, with India’s benchmark gauge rising from a seven-month low led by drugmakers and energy companies.

Futures on the Standard & Poor’s 500 Index gained 0.6 percent. Investors on Friday will be closely watching the U.S. government’s monthly jobs report. Following this week’s turmoil in financial markets, the December employment data will help signal the sturdiness of the American economy.