Reeling from China effect

PETALING JAYA: It was a tidal wave of selling across all stocks, commodities and currencies on all continents yesterday, on the back of fears that China will have a hard landing in its economy.

As at 5pm, the Dow Jones futures – an indicator of how the New York Stock Exchange is likely to perform later last night – was down a whopping 805 points to 16,125.

Last Friday, the Dow Jones broke down and succumbed to global fears of a China slowdown and joined the bandwagon of countries reeling from the China effect by falling 531 points to 16,459.75.

Prior to this, the US has been the one bright spot with its robust eco­nomy, amidst the rout of selling in emerging markets and Europe.

Brent Crude oil, which broke the psychological US$50 (RM214) level last Friday, continued on it downward descent, settling at US$44.27 (RM189) yesterday. This is now a 16-year low for oil prices.

The ringgit was one of the biggest losers among Asian currencies, shedding another 1.76% to end the day at RM4.24 to the dollar.

Other big losers were the Indian rupee and the Indonesia rupiah, which shed 1.27% and 0.78% respectively.

The Shanghai Composite Index fell 8.49% to 3,209.91, tumbling the most since 2007, while the Shenzhen Composite Index fell 7.7% to 1,882.46.

The fall in the Chinese market is unsettling, as the sharp plunge is happening even as its authorities allow pension funds, managed by local governments, to invest in the stock market for the first time.

Logically, this move should have helped facilitate hundreds of billions of yuan into the country’s equity market, which has taken a severe beating since June. But so far no impact has been felt.

On the local bourse, the FBM KLCI had its worst one-day performance of the year, closing down 42 points or 2.7% to 1,532.14.

All major Asian markets dropped, with the Hang Seng Index down 5.15% to 21,256.54 while the Nikkei 225 was down 4.61% to 18,540.68.

The Jakarta Composite Index, and Straits Times Index were down 3.97% and 3.92%.

The Malaysian market is now the second worst performing market in the Asia Pacific region after Indonesia when calculated on a US adjusted basis. On a year-to-date basis, it is down 28.18%, after Jakarta, which is down 29.47%

Since China devalued its yuan by some 2% two weeks ago, there have been havoc in emerging markets.

China’s priority is to create jobs to give its economy a lift off. Deva­luing the yuan will help its exporters become more competitive.

The Chinese yuan has been strengthening and has been losing competitiveness against its trading partners in the last year.

As the yuan trades in a narrow band against the US dollar, this means that it also strengthened against most currencies, as the US dollar has strengthened against most currencies this year.

China’s sudden devaluation has prompted other countries to deva­lue their currencies. Vietnam deva­lued the dong, while Kazakhstan’s currency lost a quarter of its value last Thursday when the oil-producing nation introduced a freely floating exchange rate of its currency.