A plunge in Chinese stocks and a falling yuan sent financial markets across Asia sharply lower Thursday. Worries intensified about China’s economy and whether authorities had lost their grip on the market.
The Shanghai Composite Index (Sha:000001) finished down 7.04% at 3,125, bringing its losses over just four trading days to 11.7%. It is on track for the largest weekly loss since the week ended August 21.
Stock markets fell across the region: Hong Kong’s Hang Seng Index was down 3.1%, the Nikkei Stock Average lost 2.3% , Australia’s S&P/ASX 200 dropped 2.2% and South Korea’s Kospi was down 1.1%.
Traders and analysts said that the weakening of the yuan in the morning triggered the initial losses, which spilled into the rest of the region. The yuan’s weakening raises the likelihood of capital flight and currency depreciation in neighboring economies, they said.
Despite reassuring statements by the central bank and stock regulator before midday, worries about how Chinese authorities would address the volatility exacerbated selling.
The instability recalls last summer, when China’s stock market crash and a surprise devaluation of the yuan by Beijing sparked a global rout, and wiped out trillions of U.S. dollars in value from Chinese equities.
Trading in mainland stocks closed for the day when the CSI 300, a benchmark of blue chips in Shanghai and Shenzhen, fell 7%. That followed a 15-minute freeze after the index fell 5%.
It was the second time China’s market triggered the circuit, which launched on Jan. 1.
After the stock market shut Thursday, China’s central bank stressed the need to keep the yuan stable and blamed speculators for what they described as abnormal fluctuations in the currency.
The country’s stock regulator also issued a statement saying it wouldn’t allow big shareholders to sell stakes of more than 1% in listed companies within three months on the secondary market. Investors who want to do so would have to disclose their plans 15 days in advance. Worries about the possible end of a six-month ban on selling by large shareholders, instituted last summer to stabilize the market, had helped send shares tumbling earlier in the week.
Meanwhile, the onshore Chinese yuan broke to a fresh low since 2011 of 6.5938 to one U.S. dollar Thursday. It last traded at 6.5914 compared with 6.5555 Wednesday.
The offshore Chinese yuan, which trades freely, sank to a fresh five-year low, too, at 6.7511 to one U.S. dollar. It last traded at 6.6878 compared with 6.6927 Wednesday.
Earlier Thursday, China’s central bank continued to fix the onshore yuan’s value lower to the U.S. dollar, at 6.5646, down 0.51% from Wednesday’s level, the biggest move since Aug. 13, after the yuan’s devaluation.
The losses in the region followed declines overnight globally. U.S. stocks fell to a three-month low and the Dow Jones Industrial is down 3% week-to-date. U.S. crude oil slumped to its lowest level since December 2008, down 5.6% to $33.97 a barrel.