Asian Stocks Extend Global Rout as China Shuts on Weaker Yuan

  • Chinese market shuts after 7% slump triggers circuit breaker
  • No market spared from carnage as Japan, Australia slide

Asian stocks tumbled as a selloff in China triggered a trading halt in the nation’s equities for the second time this week, deepening a global rout. A measure of mainland Chinese shares in Hong Kong closed at the lowest level since 2011.

The MSCI Asia Pacific Index fell 2.1 percent to 124.38 as of 4:07 p.m. in Hong Kong. Turmoil has wiped about $2.5 trillion from the value of global shares in 2016, the worst start to a year since 2000. Trading of Chinese stocks and index futures was halted by automatic circuit breakers after the CSI 300 Index plunged more than 7 percent following the People’s Bank of China’s weakening of the currency’s daily reference rate by the most since August.

“Markets are nervous -- in essence they don’t trust the policymakers in China,” George Boubouras, chief investment officer at Contango Asset Management in Melbourne, said by phone. “Investors don’t like the concept of a fast-depreciating yuan, so there’s a lack of confidence. They’re exiting liquid markets in Hong Kong, Singapore and Australia as a proxy to lower their weightings in the region. We are positioned to be defensive.”

The offshore yuan traded in Hong Kong tumbled to a five-year low after China’s central bank reduced its daily reference rate. China’s increasing tolerance for a weaker yuan signaled authorities are struggling to shore up economic growth and rekindled concern last seen in August, when U.S. stocks entered their first correction in four years.

Global markets are facing a crisis and investors need to be very cautious, billionaire George Soros told an economic forum in Sri Lanka on Thursday, adding that the current environment has similarities to 2008. The World Bank cut its global growth forecasts for this year and next as China’s slowdown prolongs a commodity slump and contractions endure in Brazil and Russia.

“The situation going forward will depend on the Chinese authorities, but it’s unclear whether they have tools that will be as effective as they were last year,” Ichiro Yamada, general manager of equities at Fukoku Mutual Life Insurance Co., said by phone. “If there’s some hope that this will materialize the falls will stop, but right now we don’t even have hope.”

Gap between onshore and offshore yuan widens to a record

The Hang Seng Index declined 3.1 percent to a more than two-year low, while the Hang Seng China Enterprises Index retreated 4.2 percent to the lowest level since October 2011. The CSI 300 of companies listed in Shanghai and Shenzhen fell as much as 7.2 percent before trading was suspended.

Under the mechanism which became effective Monday, a move of 5 percent in the CSI 300 triggers a 15-minute halt for stocks, options and index futures, while a move of 7 percent closes the market for the rest of the day. China’s securities regulator ended an unscheduled meeting on market conditions and circuit breakers without having decided on additional actions, according to a person familiar with the discussions.

Japan’s Topix index fell 2.1 percent, bringing its loss for the week to 5.8 percent, as the yen climbed 0.3 percent to 118.13 per dollar. After the market close, billionaire Tadashi Yanai’s Fast Retailing Co. cut its profit forecast by 10 percent.

Australia’s S&P/ASX 200 Index lost 2.2 percent, the most since Sept. 29, and New Zealand’s S&P/NZX 50 Index declined 0.8 percent. South Korea’s Kospi index slipped 1.1 percent and Singapore’s Straits Times Index dropped 2.5 percent, poised for the lowest close since 2012. Taiwan’s Taiex Index fell 1.7 percent.

Every industry group on the MSCI Asia Pacific index declined, led by energy as West Texas Intermediate crude oil touched $32.10 a barrel. Woodside Petroleum Ltd. sank 5.1 percent in Sydney and Cnooc Ltd. fell 5.9 percent in Hong Kong.

Futures on the Standard & Poor’s 500 Index retreated 1.7 percent after the underlying index fell 1.3 percent Wednesday to a three-month low and emerging-market shares dropped to the cheapest since 2009.

Minutes from the latest Federal Reserve policy meeting showed the committee decided unanimously three weeks ago to raise the benchmark federal funds rate by a quarter percentage point, ending an era of near-zero rates dating back to December 2008. The decision was a “close call” for some policy makers who worried about too-low inflation and received assurances that their colleagues would closely monitor its progress.

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