In the first trading session of 2016, January 4, the Shanghai stock exchange halted trading for the rest of the day because of the slump in its major indices. China’s benchmark index Shanghai Composite plunged by 6.9% while the Shenzhen Composite tumbled by 8.2%.
The movement is attributed to the yuan devaluation in addition to weak data of the Chinese industrial production. Following China’s stock market rout, all Asian indices drifted lower, including the Japanese Nikkei (down by 3.06%) and the Hong Kong Hang Seng (down by 2.8%).
Earlier, the People’s bank of China lowered the yuan official rate to 6.5 from 6.49 against the US dollar. According to the established rules, the market rate can fluctuate in a range of 2% from the official rate in any direction.
A private survey showed that China’s manufacturing PMI dropped to 48.2 in December compared with 48.6 in the previous month, while the service PMI increased to 54.4 in December versus 53.6 in November.
Over the last few months, the Chinese national currency has been weakening steadily against the US dollar. It is partially determined by stronger dollar compared to other world’s currencies. Meanwhile, China’s central bank softened requirements for currency transactions allowing the yuan to fluctuate more freely.
