Shanghai stocks tumble 5%, Shenzhen sink 6.5% on renewed rout, STI down 2%

Pedestrians walk past an electronic stock board displaying the Nikkei 225 Stock Average outside a securities firm in Tokyo.
Pedestrians walk past an electronic stock board displaying the Nikkei 225 Stock Average outside a securities firm in Tokyo. PHOTO: BLOOMBERG

SYDNEY (REUTERS) - China stock markets extended a global rout on Monday (Jan 11), sending Asian shares to their lowest in over four years as as doubts mounted about Beijing's ability to manage the world's second-biggest economy.

The Shanghai composite was down as much 5.07 per cent in late-afternoon trade, while the Shenzhen Composite sank 6.4 per cent. Hong Kong's Hang Seng index was down 2.24 per cent, slipping below the 20,000 threshold for the first time since June 2013.

Hong Kong Interbank Offered Rates for offshore yuan all hit record highs on Monday (Jan 11), as a combination of intervention by China's central bank and arbitrage drained offshore yuan supply. The overnight rate spiked to over 13 per cent on Monday, up from 4 per cent on Friday. All are much higher than the onshore rates quoted in Shanghai, where the overnight rate, while up from previously, is still below 2 per cent.

The absence of Tokyo for a holiday only made liquidity even harder to come by, heightening volatility. Currency markets saw some wild swings with the South African rand collapsing to record lows at one point before bouncing.

Singapore's Straits Times Index was down 1.96 per cent at 2,697.43 as at 2:51 pm.

Financial spreadbetters IG predicted opening losses of 0.5 per cent for the FTSE 100, 1.5 per cent for the DAX and 1.2 per cent for France's CAC.

E-mini futures for the US S&P 500 fared better, turning flat after an early loss of 0.8 per cent.

Commodities were again on the ropes as Brent crude oil shed 79 cents to US$32.76 a barrel, while US crude was 69 cents lighter at US$32.47.

China was again the epicentre of unease as the People's Bank confounded analysts by guiding the yuan's midpoint rate sharply stronger, a move that might calm concerns about a competitive devaluation but only added to market confusion as to Beijing's ultimate intent on its currency policy.

The move was an apparent reversal of the midpoint's recent weakening trend which included the biggest one-day drop in the guidance rate in five months on Jan 7.

"Authorities are reluctant to let market forces rule, which along with their indecisiveness and lack of transparency is exacerbating uncertainty," said Tapas Strickland, an economist at National Australia Bank. "Understandably, amidst this global markets are selling Chinese policymaker's ability to control their economy."

That only heightened tensions ahead of China trade data on Wednesday where declines are expected in exports and imports, underlining just how anaemic world trade flows are right now.

Both the Dow and the S&P 500 had their worst five-day starts in history last week, and the corporate news flow is unlikely to get any cheerier with the coming results season expected to be a tough one.

S&P 500 earnings are forecast to have dropped 4.2 per cent in the fourth quarter, a second straight quarterly decline led by the hard-hit energy and materials sectors.

The pain in stocks and worries over China even outweighed the positive impact of December's upbeat US payrolls report and burnished the appeal of higher-rated government bonds.

Yields on 3-, 7-, and 10-year US Treasuries all had their biggest weekly declines since early October last year, while five-year yields dropped by the most since Sept. 2013.

The gains continued on Monday with US 10-year Treasury futures up 3 ticks, while Fed fund futures were pricing in a slightly shallower upward path for rates.

In currency markets, the main early news was the yen which is often favoured in times of stress as Japan remains the world's largest creditor nation.

The US dollar initially fell half a yen to a near five-five month low of 116.70 yen, before steadying around 117.22.

Dealers said Japanese investors seemed to be bailing out of long positions in the South African rand by selling rand for dollars and then those dollars for yen.

That saw the dollar surge as much as 10.3 per cent at one stage to 17.9950 rand, before tracking back to 16.6780. That was still up from 16.3150 late on Friday.

The euro started firmer but soon softened to US$1.0917 while the dollar index was all but flat at 98.476.