Asian shares are on course to post their biggest weekly fall in more than four years as investors dumped risk assets on fears over China’s economy and its turbulent financial markets.
China announced late on Thursday it suspended its new stock market circuit breaker introduced only on Monday as the system failed to reduce market volatility, with some market players even saying it backfired.
The People’s Bank of China (PBOC) also wrong-footed traders by reportedly intervening heavily to defend the yuan in offshore trade, reversing a decline of more than 1 percent that took it to a record low of 6.7600 per dollar. CNH=
The action was somewhat ironic since it was the PBOC that triggered the slide early Thursday by fixing the yuan at a much lower rate than many expected.
That left dealers at a loss to know what the central bank might do at Friday’s fixing.
“The sharp drop has led to speculation that China is letting go of the reins on the CNY (yuan), or perhaps targeting faster depreciation to reach an ‘equilibrium’ level,” wrote analysts at Barclays, while conceding that no one was really sure.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2 percent, extending this week’s loss to 7.4 percent, which would be its biggest fall since September 2011.
Japan’s Nikkei, which is in its worst start of year in 20 years, fell 1 percent to a three-month low and is likely to post its biggest weekly fall since March 2011.
“There is lots of negative news from China, North Korea and indeed almost all of the emerging markets... After last year’s good performance we were bound to see a pull-back. Companies will remain cautious in their outlook when they present Oct – Dec 2015 earnings,” said Hannah Cunliffe, senior portfolio manager at Union Investment in Frankfurt.
“The Nikkei will trade below its 2015 high for most of this year,” she said.
The picture is similarly gloomy on Wall Street, with the S&P 500 losing 2.4 percent on Thursday, with 40 percent of the stocks in the benchmark trading 20 percent or more off of their highs, the definition of a bear market.
After the U.S. market close, two Apple suppliers added to growing worries about slowing shipments of iPhone 6S and 6S Plus by cutting their revenue estimates for the third quarter.
That news put fresh pressure on many Apple suppliers in Asia, although the immediate focus is on the Chinese yuan and Chinese shares.
In commodities Brent crude settled down 48 cents at $33.75 on Thursday, after sliding to a low of $32.16, a level last seen in April 2004.
A plunge in oil revenues is seen hurting many oil producing countries such as Saudi Arabia.
In a sign of Riyadh’s dire fiscal position, Saudi Arabian deputy crown prince Mohammed bin Salman told The Economist magazine it is considering whether to sell shares in state oil giant Saudi Aramco.
With risk appetite severely hurt, investors are flocking to low-risk assets such as bonds, gold and traditional safe-haven currencies.
The 10-year U.S. Treasuries yield fell to a 2 1/2-month low of 2.119 percent on Thursday and last stood at 2.156 percent.
Gold rose to a two-month high of $1,113.2, a gain of 4.9 percent so far this year.
The yen stood near Thursday’s 4 1/2-month high of 117.33 yen, last trading at 117.64 yen. The euro was little changed at $1.0917.
The Australian dollar, often used as a liquid proxy for China trade, licked wounds at $0.7016, having fallen to a three-month low of $0.6981, which represented a 4.2 percent fall from the end of last year.