IN JUST A FEW DAYS,The turmoil in China has wiped 2,500 billion dollars from the global stock markets

ALINA VASIESCU (translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section / 8 ianuarie 2016

The turmoil in China has wiped 2,500 billion dollars from the global stock markets

Soros: "The situation in China reminds me of the crisis of 2008"

The Chinese stock exchanges have halted trading yesterday for the second time this week

The markets in China have seen a new major decline yesterday, which caused the triggering of the "circuit breaker" mechanism, which halts trading to reduce volatility, for the second time this week. The situation comes after Monday's similar episode, which has generated turbulence amid all the markets in the world, wiping almost 2,500 billion dollars off the valuation of world stocks, according to Bloomberg figures. For the global stock markets, the beginning of 2016 has been the worst since 2000.

Yesterday, the major index of the Shenzhen market fell 8.2%, to 1,958.09 points, and that of the Shanghai exchange - 7%, to 3,125. The CSI 300 index, which comprises the stocks listed in Shanghai and Shenzhen, dropped 6.9%, to 3,294.38.

Whereas on Monday, the Chinese stock exchanges fell after the publication of weak data about the biggest economy in Asia, yesterday, the decline was caused by the depreciation of the yuan, which fell to its lowest level since February 2011. China's central bank yesterday set a reference exchange rate for the yuan of 6.5646 units / dollar, 0.5% lower than on the previous day. The daily drop is the biggest since August.

This week, the yuan has not only depreciated against the dollar, but also against other important currencies: -3.5% against the yen and -0.8% compared to the Euro.

Given these developments, concerns have appeared on the financial markets that Beijing is depreciating its currency to prop up its exports.

The impact of the evolution of the Chinese stock market has been felt on the European markets as well, which have fallen to their lowest level since August.

American billionaire of Hungarian origin George Soros yesterday said that the global markets are facing a devastating crisis, and investors should be extremely careful.

According to him, China is struggling to find a new growth model, while the devaluation of the yuan carries Beijing's problems all over the world. Soros warned: "China has a major adjustment problem. I would say it is a new crisis. When I look at the financial markets, I see a major challenge, which reminds me of the crisis we had in 2008".

China's foreign currency reserves, in a record decline

China's foreign currency reserves, the biggest in the world, have decreased by 107.9 billion dollars in December 2015, to 3,330 billion dollars, a record monthly decline, according to data provided by the Beijing central bank.

Analysts were estimating reserves of 3,400 billion dollars.

Over the course of last year, China's foreign currency reserves decreased by 512.66 billion dollars, also a record.

The value of China's gold reserves was 60.19 billion dollars at the end of December, compared to 59.52 billion dollars in the previous month.

Major drops on the oil markets

Oil future prices fell sharply yesterday, amid investor fears of a slowdown in China's economy, the world's biggest consumer of commodities.

The price of West Texas Intermediate (WTI) crude with February delivery had fallen 3.4% at 08:47, on the New York Mercantile Exchange, to 32.83 dollars a barrel. Also yesterday, the price of Brent crude with February fell 3.1% on ICE Futures Europe of London, to 33.18 dollars/barrel. Earlier, the price of Brent crude had dropped 6%, to a daily low of 32.16 dollars/barrel, and that of WTI crude had reached a minimum of 32.10 dollars/barrel.

The price of WTI oil dropped 31% in 2015, and Brent oil lost 35%.

According to analysts by Japanese bank "Nomura", the price of Brent oil will reach 30 dollars a barrel in the next ten days.

The reference price in the OPEC was 29.71 dollars on Wednesday, below the 30 dollars level for the first time since April 5th, 2004. Wednesday's level is 4.8% lower than on the previous day.

The financial markets regulator in China yesterday decided to suspend the "circuit breaker" mechanism, after the closing of the Shanghai and Shenzhen exchanges prior to the end of the trading session. In the opinion of some specialists, that has created panic instead of lowering volatility.

"The use of the mechanism is the main reason for the drop in the markets, because investors panicked after they saw it triggered on Monday. This mechanism cut access to the liquidity market and investors got scared that they would not be able to sell", said Chen Xingyu, analyst with "Phillip Securities".

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