ASX loses $100 billion as lack of confidence in Chinese economy panics investors

Posted on 22/01/2019 by

More than $100 billion in shareholder value has been torched on the ASX this year. Photo: Andrew QuiltyComment: Share market is a slave to clumsy ChinaWhy China’s currency moves shouldn’t cause panicRBA likely to shrug off share slump: Capital EconomicsAussie dollar heading for GFC levels, analysts say

The n sharemarket plunged to a 2½ year low and dragged the year’s losses to more than $100 billion as doubts mount over China’s economy.

The S&P/ASX 200 index hit 4880 in morning trading, its lowest point since July 2013, before recovering in the afternoon to close 1.2 per cent down at 4932.

​The gloomy conditions saw beleaguered miner BHP Billiton’s share price hit an 11 year low to $15.55 and the n dollar fall deeper below US70¢ to US69.28¢.

Rio Tinto fell to a seven year low, to $40.50, while ANZ Banking Group and National Bank fell to three year lows during the session.

“This is effectively a lack of confidence from markets particularly in Chinese authorities’ ability to control their currency, their housing market, their domestic heavily retail-focused equity market,” Contango Asset Management chief investment officer George Boubouras said.

“In part it can be an unrealistic expectation from western investors on what Chinese policy makers are actually doing.”

The cutting of its currency, the renminbi, from its daily fix rate against the US dollar last week sparked the market turmoil, as well as the intervention in its sharemarkets, which were closed twice in a now-defunct circuit breaker policy that halted trading after stocks fell beyond 7 per cent.

“The problem with a system steeped in government intervention is that there is a lack of faith in allowing market mechanisms to deal with quantity and price – too often planners will to try to control both,” billionaire investor Kerr Neilson said in a note to investors.

Mr Kerr said of greater concern than Chinese markets was US stocks, which he said were overvalued.

Behind the fear on China, which has sent the n sharemarket down 7 per cent in little over a week, as well as Asian bourses, Wall Street and the n dollar down, was the reality of an economy in transition, Mr Boubouras said.

It was now in the grip of a transition from a rapidly growing, yet unsustainable, manufacturing led economy, to one driven by domestic consumption, which began three years ago, he said.

“This is an important transition for any economy, it just happens to be the world’s second largest economy”.

On Monday the People’s Bank of China marginally lifted the rate at which the renminbi is fixed to the US dollar for a second day in a row, which calmed markets somewhat after last week’s 1.5 per cent cut. Its shock cut in August last year of 2 per cent from a previously stable peg sent global markets swooning and Wall Street to post its worst day in four years.

The cut was in response to a stronger US dollar, which has risen as the US moves towards higher interest rates, and sliding inflation.

Stocks stabilised around the region throughout Monday trade, but were still well down. The Hangzhou Composite Index was down more than 3 per cent in late trade, while Japan’s Nikkei was 0.4 per cent lower.

“Global markets are still in the grips of China fears, and it is uncertain whether the Chinese government can do enough to reassure global investors,” IG market analyst Angus Nicholson said.

Markets will begin to consolidate when they find reason for confidence in China, Mr Boubouras said.

“The interpretation is that large currency devaluations aren’t helpful,” he said.

“Investors should get comfortable with being uncomfortable, the volatility’s not going to go away because of the [uncertainty].”

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