The market has showed signs of recovery in the past few days with the Shanghai Index reaching more than 4,000 points before falling back to just above 3,700 Tuesday afternoon. Hong Kong’s Hang Seng index sank 1.4 percent to 23,474.97 while Australia’s S&P/ASX 200 fell 1.2 percent to 5,303.10.
The mood was not helped by Friday’s announcement by China’s securities regulator that the state agency tasked with supporting share prices will reduce buying as the market stabilises.
“There is a gradual strengthening in the US housing market with positive implications for employment and economic growth if sustained”, Matthew Sherwood, head of investment strategy at Perpetual Ltd.in Sydney, which manages about $22 billion, said by e-mail.
In addition, China has wanted its currency to be accepted internationally. Wal-Mart’s shares slid after cutting its earnings forecast for the year, while renewed concerns over the strength of China’s economy weighed on world markets. It had plunged 3% last week.
The cash injections are also a part of what some economists have dubbed a new stimulus package aimed at boosting economic growth.
It fell another 0.3 percent to $48.58 in Asia on Tuesday while US crude futures flirted with 6 1/2-year lows. On Wednesday, Japan reported a monthly deficit in July of Yen268.
“The possibility of exports to see year-on-year decline in some months could not be ruled out”.
“For the whole year, the foreign trade will face more severe situation than we expected”.
Only last month, the ministry predicted exports would improve in the second half of this year from the first half. The People’s Bank of China had said that the move was to make the currency more market oriented.
What is really strange, however, is that over the past year the U.S. has refused to defend its export market share, as the U.S. government has taken no official policy position on the value of its currency. In the spot market, the yuan closed flat at 6.3938 (CNY=CFXS).
China’s central bank set the yuan’s midpoint near Monday’s closing price. The seven-day repo rate increased three basis points to 2.53 percent, the highest since July 23. The currencies of emerging markets like Malaysia and Indonesia have fallen to their lowest level since 1997.
A week later, the central bank is still struggling to control the fallout.
Chinese stocks recouped early losses yesterday but gains were capped by fears that Beijing would let the yuan depreciate further, despite statements from the central bank last week that it sees no reason for more declines.
The yuan has fallen 3 per cent against the dollar since the eve of the devaluation, but that marks only a partial reversal of its gains over the past 12 months, especially against currencies of major trading partners Japan and the euro zone.