Asia stocks plunge, yuan sinks on trade war escalation; STI closes down 2%

MSCI’s broadest index of Asia-Pacific shares outside Japan sank 2.1 per cent to depths not seen since late January while China’s blue-chip index fell 0.8 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan sank 2.1 per cent to depths not seen since late January while China’s blue-chip index fell 0.8 per cent.PHOTO: EPA-EFE

SHANGHAI (BLOOMBERG) - US stock futures slumped with European stocks on Monday (Aug 5), tracking a sell-off across Asia after China struck back in its trade dispute with America and let its currency weaken through a milestone level. Treasuries led a global bond rally as investors dashed to safer assets.

The MSCI Asia Pacific Index sank 2.1 per cent, headed for the largest tumble in more than nine months.

Singapore shares plunged 2 per cent on yuan weakness and trade war escalation. The Straits Times Index (STI) lost 66.6 points or 2.04 per cent to close at 3,194.51.

Hong Kong shares were hit hardest in Asia as protesters moved to shut down the financial hub in widening social unrest. Hong Kong’s Hang Seng Index sank 2.9 per cent on the biggest slide in three months. The MSCI Hong Kong Index closed down 3.2 per cent on a ninth day of declines, matching the longest streak since the 1997 handover.

Landlords, retail stocks and casinos once again bore the brunt of the selling as protesters sought to shut down the city with a general strike. The sinking Chinese currency did not help either, with its plunge past 7 per US dollar escalating concerns about the US-China trade war.

The benchmark Shanghai Composite Index dropped 1.62 per cent, or 46.34 points, to close at 2,821.50. The Shenzhen Composite Index, which tracks stocks on China’s second exchange, lost 1.47 per cent, or 22.59 points, to close at 1,517.27.

Tokyo stocks closed sharply, weighed down by a strong yen and tracking losses on Wall Street amid US-China trade woes. The benchmark Nikkei 225 index dropped 1.74 per cent, or 366.87 points, to end at 20,720.29 while the broader Topix index lost 1.80 per cent, or 27.58 points, at 1,505.88.

S&P 500 Index futures slumped as much as 1.5 per cent, while declines in mining, industrial goods and tech shares led the Stoxx Europe 600 lower.

 
 
 

China’s move to weaken the yuan suggests the level is no longer a line in the sand for policy makers in Beijing. Equities took another leg down after Bloomberg reported the Asian nation has asked state purchasers to halt imports of American agricultural products. Hong Kong shares were hit hardest as protesters moved to shut down the financial hub in widening social unrest.

Havens were in demand. Gold rallied and 10-year Treasury yields dropped to their lowest closing level since October 2016. European bonds advanced as data showed economic activity in the euro area’s private sector weakened further, while the yield on 10-year UK gilts fell to a record low.

After a dramatic session in Asia, all focus will now be on whether US President Donald Trump responds to the Monday news about China’s exchange-rate. In the past he has criticized the Asian nation for allegedly manipulating the yuan for competitive advantage in exports. Wall Street has also speculated about the potential for the Trump administration to intervene to cap dollar gains, though White House economic adviser Larry Kudlow on Friday ruled that out.

The yuan’s drop was the biggest since August 2015, when officials announced a surprise devaluation that roiled global markets. The People’s Bank of China said that it is able to keep the currency stable and at a reasonable level, and that the yuan broke above 7 per dollar because of trade protectionism.

“The market needs a circuit-breaker,” such as a more aggressive Federal Reserve or a resumption of US-China talks, Jonathan Cavenagh, head of foreign-exchange strategy for emerging markets Asia at JPMorgan Chase & Co. in Singapore, said on Bloomberg Television. “If you see enough US equity-market weakness, if you see enough downward momentum in economic data, then both sides may come back to the negotiating table at some stage. But I don’t think that’s going to happen at least in the near term.”

Elsewhere, West Texas oil dropped below US$55 a barrel amid a sell-off in commodities. Iron ore futures in Singapore plunged the most in more than two years, to below US$100 a ton. Bitcoin jumped more than 12 per cent, climbing back above US$11,000.