Asian stocks and
emerging market currencies tumbled on Wednesday and commodities fell
after China allowed the yuan to fall sharply for a second straight day,
forcing investors to seek refuge in safe-haven government debt.
On Wednesday, the People's Bank of China CNY=CFXS set the yuan's midpoint rate CNY=SAEC
weaker than Tuesday's closing market rate, which had already fallen
sharply after China devalued its currency by 2 percent in a surprise
move.
The central bank had billed Tuesday's change as a free-market reform but experts suspect it could be the beginning of a longer-term slide in the exchange rate aimed at making China's ailing exports more competitive.
The rapid drop in the value of China's currency -- around 4 percent in the last two days -- dealt a body blow to appetite for risky assets globally, with equities, currencies and commodities coming under selling pressure as money managers feared it could ignite a currency war that would destabilize the global economy.
MSCI's
broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell
1.7 percent to two-year lows. Stock markets from Australia to Singapore
were a sea of red in early deals.
"China’s currency moves will hurt appetite for risky assets such as equities and commodities," said Rajeev De Mello, head of Asian fixed income at Schroders in Singapore which manages $10 billion in Asia.
"While it is too early to say whether this is the beginning of a sustained devaluation of the yuan, other central banks may be forced to follow suit and that may trigger a fresh round of currency weakening around the emerging world."
At Wall Street, the Dow .DJI fell 1.2 percent and the S&P 500 .SPX shed 1 percent as China's currency move added to worries about the global economic outlook and hit companies with large exposure to the country.
Many Western firms have already been reporting slowing sales in China as its economy cools and shares of companies from German auto makers to luxury good makers are expected to come under pressure.
Emerging market currencies from Indonesia to Brazil reeled as investors feared central banks around the world could rush to weaken their own currencies in response to China's move.
That meant only the greenback was left standing tall with the U.S. dollar holding near a two-month high of 125.17 yen JPY=, while the broad dollar index .DXY was stuck within recent trading ranges.
Currencies considered as China proxies were singled out for special punishment, with the Australian dollar AUD=D4 nursing losses at 0.7255 per dollar after falling more than 1.5 percent overnight.
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| People's Bank of China |
The central bank had billed Tuesday's change as a free-market reform but experts suspect it could be the beginning of a longer-term slide in the exchange rate aimed at making China's ailing exports more competitive.
The rapid drop in the value of China's currency -- around 4 percent in the last two days -- dealt a body blow to appetite for risky assets globally, with equities, currencies and commodities coming under selling pressure as money managers feared it could ignite a currency war that would destabilize the global economy.
"China’s currency moves will hurt appetite for risky assets such as equities and commodities," said Rajeev De Mello, head of Asian fixed income at Schroders in Singapore which manages $10 billion in Asia.
"While it is too early to say whether this is the beginning of a sustained devaluation of the yuan, other central banks may be forced to follow suit and that may trigger a fresh round of currency weakening around the emerging world."
At Wall Street, the Dow .DJI fell 1.2 percent and the S&P 500 .SPX shed 1 percent as China's currency move added to worries about the global economic outlook and hit companies with large exposure to the country.
Many Western firms have already been reporting slowing sales in China as its economy cools and shares of companies from German auto makers to luxury good makers are expected to come under pressure.
Emerging market currencies from Indonesia to Brazil reeled as investors feared central banks around the world could rush to weaken their own currencies in response to China's move.
That meant only the greenback was left standing tall with the U.S. dollar holding near a two-month high of 125.17 yen JPY=, while the broad dollar index .DXY was stuck within recent trading ranges.
Currencies considered as China proxies were singled out for special punishment, with the Australian dollar AUD=D4 nursing losses at 0.7255 per dollar after falling more than 1.5 percent overnight.
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