Turbulence sends Asian markets to nine-month lows

Tokyo — Chinese stocks went into a tailspin on Tuesday as turbulence gripped equity markets in Asia, which sank to nine-month lows as investors feared the China-US trade row could derail a rare period of synchronised global growth.

Speculation was rife the central bank in China was intervening in the currency market to staunch losses and prevent a potentially destabilising sell-off in the yuan.

Chinese financial markets have been jittery ahead of a July 6 deadline, when the US is set to slap tariffs on $34bn worth of Chinese goods that Beijing has vowed to match with tariffs on US products.

The trade row between the US and major economies has rattled financial markets in the past several weeks, with no sign US President Donald Trump is about to back down from his “America First” protectionism policies that many fear will harm the global economy.

The Asia-Pacific MSCI index ex-Japan tumbled 1.4% to its lowest since September 29, while Japan’s Nikkei average was down 0.86% to an almost three-month low.

Chinese stocks were hit the most, with Hong Kong’s Hang Seng index diving 3.3% to its lowest level in 10 months, the Shanghai Composite index shedding 1.9% to hit a fresh 28-month low.

“It’s not clear yet if the trade row will derail the global economy as a whole but it’s already clear that it will harm Chinese companies,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

“That is why we’ve seen Chinese yuan and Chinese stocks have suffered sell-offs. I think this will continue at least until the July 6 deadline.”

The Chinese yuan, on a downward spiral since mid-June, slipped past 6.7 to the dollar in early trading on Tuesday for the first time since August 9 2017 before paring losses on talk of intervention by the Chinese central bank.

The central bank put the midpoint roughly in line with market expectations at 6.6497 yuan to the dollar, its weakest level in about 10 months, setting the stage for the day’s drop.

The yuan was last traded at 6.6998 to the dollar.

“I detected increasing alarm over trade tensions and a lot of nervousness about a full-blown trade war, which comes at a bad time for China where the economy is undergoing a downdraft at the same time the US is seeing a sharp upturn,” said Aninda Mitra, Singapore-based senior sovereign analyst at BNY Mellon Investment Management, who visited Shanghai last week.

Trump told the World Trade Organisation (WTO) on Monday that “we’ll be doing something” if the US was not treated properly, just hours after the EU said that US automotive tariffs would hurt its own vehicle industry and prompt retaliation.

Officials in China, the epicentre of the international trade row, have warned the US that the tit-for-tat tariffs on each others goods would ultimately prove detrimental for American businesses and jobs.

Elsewhere in currency markets, the euro, which had been pressured by political uncertainty in Germany, pared losses after Chancellor Angela Merkel’s conservatives settled a row over migration that threatened to topple her governing coalition after interior minister Horst Seehofer dropped his threat to quit.

The euro last traded at $1.1632, after shedding 0.45% overnight.

The dollar last stood at ¥110.82, giving up gains following sharp falls in Chinese shares.

Investors are also keeping an eye on the Reserve Bank of Australia’s (RBA) policy meeting later on Tuesday for any mention of the US-China trade tensions. The central bank is considered certain to maintain rates at 1.5%, where they have been since mid-2016.

China is Australia’s major export market and its currency, the Australia dollar, is considered a liquid proxy for China-related risk.

The Aussie dollar was not far off a one-and-a-half-year low of $0.7311 plumbed on Monday, fetching $0.7328.

Oil prices climbed on Tuesday after Libya declared force majeure on some of its supplies, with Brent crude rising 0.83% to $77.94 a barrel and West Texas Intermediate (WTI) crude was up 0.87% to $74.58 a barrel.

Reuters

Source: businesslive.co.za