Asian shares retreated to two-year lows on Wednesday after Chinese stocks extended their plunge, continuing to stoke fears about the stability of China’s economy.
Futures on Chinese equities dropped in most recent trading, with contracts on the Shanghai Shenzhen CSI 300 Index slipping 6.5 per cent. Futures on the FTSE China A50 Index, a gauge of the biggest mainland Chinese stocks, lost 0.3 per cent in Singapore, while those on the Hang Seng China Enterprises Index were little changed. Sydney fell 1.20%, or 64.55 points, to 5,303.10 and Seoul dipped 0.62%, or 12.26 points, to close at 1,956.26.
Their anxiety is only heightened by the prospect of an imminent rise in U.S. interest rates, which would draw capital away from emerging markets like China. These two concerns dominate their minds now, ” said Masaru Hamasaki, head of market & investment information department at Amundi Japan.
Bangkok shares slumped 2.56%, the most in eight months, led by a slump in tourism stocks.
MSCI’s emerging market index fell to its lowest level since October 2011.
Saudi Arabian shares fell for a sixth day, with the Tadawul All Share Index 2.4 per cent sliding to the lowest since January, after the worldwide Monetary Fund said the drop in oil prices will force spending cuts and curtail economic expansion. It last stood at $5,018.50 a tonne. Net exports to China make up 1.4% of Chilean GDP-an order of magnitude higher than Brazil’s-of which 84% is copper. The People’s Bank of China has been selling some of its dollar holdings to prevent the yuan from slipping further against the dollar. Vietnam widened the dollar/dong trading band to 3 percent from 2 percent, the second move in a week, in an effort to protect its exports.
In the derivative markets, implied currency volatility in offshore yuan CNH1MO= has declined from record highs hit last week, though it remains at elevated levels as traders have begun to price in greater expected ed price swings in the yuan.
Speculation the Fed will soon raise its key rate for the first time in nearly a decade has strengthened the dollar, while concerns the fall in the yuan could spark a currency war has dragged on many Asia-Pacific currencies.
The minutes of the Federal Reserve’s July meeting due later on Wednesday will be evaluated for any new clues on the Fed’s policy stance.
Elsewhere, currency markets were largely quiet, with the euro steady against the dollar at $1.1074. “However, the internal dynamics of China’s economy continue to flash warnings that this calm will not last”, Angus Nicholson, IG market analyst, wrote in a note.
Oil resumed falling after a brief bounce on Tuesday. However, institutions like Goldman Sachs believe that the Chinese economy remains an essential factor in seeing a better commodity market in the remaining quarters of this year.
Taipei slid 0.44%, or 36.2 points, to 8,177.22; Taiwan’s biggest bank Cathay Financial Holding fell 3.86% to Tw$44.80 while Fubon Financial Holding declined 3.38% to Tw$51.40. Brent crude was down 0.4 per cent at $48.63 a barrel and in reach of 6-1/2 month troughs.