Chinese market tumult again hits rand, stocks

January 8, 2016, 7:44am

A pedestrian walks past an electronic stock board displaying the Nikkei 225 Stock Average and the Shanghai Stock Exchange Composite Index in Tokyo, Japan, on Thursday. Picture: BLOOMBERG/TOMOHIRO OHSUMI  

Reuters, Bloomberg, Neels Blom, Maarten Mittner on Business Day Live

THE rand plumbed new depths again on Thursday as risk aversion swept through global markets, knocking down stocks and currencies.

In another frenzied day fuelled by Chinese market turmoil after the yuan was devalued and trading halted abruptly, the rand hit R16.20/$ — a new record low.

Although most emerging market currencies took a knock, the rand sank more than most because of worsening perceptions about SA’s economy.

The currency has also not recovered from its crash last month after President Jacob Zuma fired former finance minister Nhlanhla Nene.

Mohammed Nalla, head of strategic research at Nedbank, said yesterday’s steep fall was an "extension of a longer trend, which had continued through last year".

The rand plunged 25% against the dollar last year. The continued weakness showed "SA no longer gets the benefit of the doubt from the markets", he said. "Before the announcements (on Nene), the downward trend in the rand’s value was part of a global story. In fact, SA had been treated better than its peers among emerging economies. That is now over."

In late afternoon trade, the rand recovered and at the close of the local market it was R16.11/$ from Wednesday’s R15.86/$.

Yesterday, shares on major exchanges fell for a sixth consecutive day, although crude prices bounced back from multiyear lows as volatile markets digested another move lower in the yuan and Chinese efforts to stabilise a sinking stock market.

Comments by billionaire George Soros exacerbated market jitters after he told an economic forum in Sri Lanka yesterday that global markets were facing a crisis and investors needed to be very cautious.

"China has a major adjustment problem," Mr Soros said. "I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge, which reminds me of the crisis we had in 2008."

Stocks on Wall Street pared losses after China suspended the circuit-breaker that stops trading for the day when stocks fall 7% — a halt that occurred twice this week. Analysts and investors said that the mechanism, put in place to avoid market volatility, may have backfired.

Brent crude cut a loss of more than 6% to trade down 0.4%, with traders on Thursday citing short-covering. US crude, down as much as 5.5% earlier, was down 0.8%.

The 7% drop in Chinese markets triggered a flight to safety, but the circuit-breaker reversal helped cut losses in other risk assets, including the US dollar.

Investors, however, remain concerned China is struggling to keep control of the yuan. The People’s Bank of China (PBOC) set the yuan midpoint rate at 6.5646/$, a 0.5% decline that was the biggest between daily fixings since August. It was the eighth consecutive day that the PBOC set a lower guidance rate.

On Wall Street, energy stocks pared a 2% loss and major indices were down about 1%, about half as much as at their session lows. Still, the S&P 500 was down almost 4% so far this week.

"There is a wall of worry under full construction, brought on by China, fall in oil prices and uncertainty regarding quarterly earnings," said Terry Sandven, chief equity strategist at US Bank Wealth Management.

The FTSEurofirst 300 index and the euro zone’s blue-chip Euro Stoxx 50 index were down 2.4% and 1.8%, respectively, having fallen more than 3% earlier in the session.

A gauge of major stock markets globally fell 1.4%. After plunging almost 3%, the JSE all share closed down 2.1% and the top 40 index down 2.18%.

Investors fear China’s economy is weaker than had been imagined, with Beijing, in a bid to help exporters, allowing the yuan’s depreciation to accelerate.

The dollar index was down 0.4% on the day. The euro gained 0.7% to $1.0849. Global oil benchmark Brent gained 0.5% to $34.40 a barrel.

Reuters, Bloomberg, Neels Blom, Maarten Mittner