Date
23 May 2017
Wall Street ended lower as investors contemplated the implications of China's surprise devaluation of its currency. Photo: Reuters
Wall Street ended lower as investors contemplated the implications of China's surprise devaluation of its currency. Photo: Reuters

Renminbi devaluation clobbers markets

Global equities and US oil prices plunged after China devalued its currency by 2 percent on Tuesday.

Wall Street ended lower as investors contemplated the implications of a move designed to support China’s slowing economy and exports, Reuters reported. The MSCI All World Index of global shares fell 1 percent.

“What is good for growth in China is unfortunately bad for everybody else,” Bill McQuaker, co-head of the multi-asset team at Henderson Global Investors, was quoted as saying.

The Dow Jones industrial average fell 1.21 percent to finish at 17,402.84 and the S&P 500 was 0.96 percent lower at 2,084.07. The Nasdaq Composite dropped 1.27 percent to 5,036.79.

Oil prices declined as dollar-priced commodities became more expensive, weighing on demand. US crude CLc1 fell more than 4 percent to US$43.08 a barrel, its lowest settlement since March 2009.

“It’s time to sell any and all rallies,” Tariq Zahir, managing member of Tyche Capital Advisors in Laurel Hollow, New York, said.

Companies that sell to China were hit hard. Heavy equipment maker Caterpillar lost 2.65 percent, while natural resource company Freeport-McMoRan sank 12.27 percent.

The pan-European FTSEurofirst 300 index was down 1.68 percent, led lower by carmakers and luxury goods companies, whose products are now more expensive for Chinese consumers.

Against the trend, Greek shares gained 2.14 percent after Athens secured a third bailout deal with creditors.

On Chinese stock markets, airlines and importers fell, though exporters rose. The CSI300 index of the largest listed companies in Shanghai and Shenzhen lost 0.4 percent and the Shanghai Composite closed flat.

China’s move, which the central bank described as a “one-off depreciation” based on a new way of managing the exchange rate that better reflected market forces, triggered the yuan’s biggest fall since 1994, pushing it to its weakest against the US dollar in almost three years.

In a potentially worrisome sign, China’s offshore yuan, a more liquid instrument traded out of Hong Kong, fell 2.9 percent, exceeding the fall in the onshore yuan.

It suggests more possible losses for the onshore currency, as the Hong Kong-traded yuan tends to act as a precursor to the onshore, the report said.

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RA/CG

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