Asian stocks declined to three-year low, as the slide in Chinese equities accelerated. This, feared by the international investors, could possibly be a sign of a global economic slowdown. The Shanghai Composite dropped as much as 9 percent, with the move that erased this year's gains. The index is now trading 37-percent lower than June’s high.
Other markets followed suit, as the UK FTSE, German DAX and French CAC indexes opened sharply lower.
China’s efforts to support exports by devaluing its currency has caused instead analogous moves by other countries, after last week the People’s Bank of China devalued the yuan for three consecutive days, with overall depreciation over 4.4 percent.
The Kazakh tenge dropped more than 23 percent, whereas Malaysian ringgit declined 17 percent last week. The Turkish lira was down to more than 5 percent, following the Chinese move, with overall decline to more than 25 percent in a year. Vietnamese dong and Saudi Arabia’s riyal were also strongly affected.
Deteriorating economic outlook and increasing capital outflows from China made the recently introduced government measures to support the market ineffective. The government has invested more than 400 billion USD into the Chinese market through a state agency. It also banned major shareholders from selling and inducing state-owned entities to buy stocks.
This weekend’s continued effort, which for the first time allows pension funds to acquire shares, has likewise deemed futile, with the market declining further.
Among the economic slowdown and declining demand for commodities, mining companies were strongly hit. “The mining sector is clearly exposed to China’s slowing economy. But today’s sell-off has spread much wider — every company on the FTSE 100 has fallen this morning,” the Guardian newspaper reports. The FTSE itself was trading below 6.000 mark for the first time since the beginning of 2013.
Oil prices continue to plunge at unprecedented speed, with Brent oil trading at the 2009 lows. Nevertheless, gold seems to have been revived on the news, reaching a one-month high resistance of 1167.00, which also coincides with the upper border of the downward trending channel.
One of the biggest losers, however, is the US dollar itself, as the soon expected rate hike will now probably be postponed with the US economy seriously affected by the Chinese market crisis. The index is falling sharply for the fourth day in the row, trading just above 94.00 support level this morning — the index two-month low.