With Shanghai stocks’ brutal selloff on Thursday after China allowed its currency yuan to fall further and oil prices slid to near 12-year low, Chinese stock market woes once again shook the global equity indices. Indian markets, too, bore the brunt, resulting in benchmark Sensex closing at 19-month low below the 25,000 mark.
With Beijing’s effort to accelerate the yuan’s depreciation to make its exports more competitive, investors fear China’s economy is even weaker than it had been imagined. European markets also fell sharply with major stock market indices in the region down nearly 3 per cent, while Dow e-minis were down 380 points, or 2.26 per cent, with 99,258 contracts changing hands at early trade.
The crash in China’s stocks also triggered a sharp fall in other Asian markets. Japan’s Nikkei shed 2.3 per cent, while Hong Kong’s Hang Seng plunged 3 per cent. As far as the domestic market is concerned, in a repeat of the performance that shook the world markets a few days back, on Thursday, the Sensex, after hitting the day’s low of 24,825.70, down 580 points, ended the session at 24,851.83, down 554.50 points, or 2.2 per cent from previous close.
So far, in last four sessions, the Sensex has plunged a whopping 1,309 points or 5.1 per cent. The broader 50-stock Nifty also reeled under selling pressure and ended below the crucial 7,600-mark at 7,568.30, down 172.70 points or 2.2 per cent.
In the Indian markets, metal stocks came under strong selling pressure on concerns that the depreciation of the Chinese yuan could make imports cheaper. Oil stocks also tumbled following global crude prices plunging to 11-year lows.
Cairn India slumped 8 per cent while ONGC tumbled 4.6 per cent. Among the metal stocks, Vedanta plunged 8.7 per cent while Tata Steel fell 7 per cent.
Analysts, however, attributed the crash in China market to the sharp fall of the nation’s currency yuan, which fell to lowest since March 2011, deepening concerns about the economy and the potential for competitive devaluations by other countries. With such development, they believe that India will remain attractive and the market will recover when such sentiments settles. “We will see such sell-offs whenever there is a big impact on China and we have to live with it. Even with such volatility, investors will find Indian market attractive when the dust settles,” they said.
With such massive fall in China indices, world’s largest China’s foreign exchange reserves, fell $107.9 billion in December to $3.33 trillion, adding another woes to its economy. “This is the biggest monthly drop on record,” central bank data showed on Thursday, while the reports show that the December figure missed market expectations of $3.40 trillion. Comparing the data on year-on-year, China’s foreign exchange reserves fell $512.66 billion in 2015, the biggest annual drop on record.
The Word Bank on Wednesday cut its global economic growth forecast for 2016, citing concerns over the performance of major emerging market economies like China and Brazil.
The depreciation of China’s currency comes at a time when the US is looking to tighten its monetary policy. “This is perfect storm of everything coming together,” said Michael Every, head of Financial Markets Research for Asia-Pacific, at Rabobank. “The more China devalues, they send the message that they would be exporting more. Effectively, China is exporting deflation to the rest of the world which is already struggling with deflation,” Every said.