China impact: Europe stays steady as Asian shares decline

Krishnanand Tripathi

Indian stocks suffered loss of 5% since start of the year 2016. Photo-PTI

Chinese stock ended in deep red on Monday as the main indices closed down by over 5% on the first trading session of this week. In mainland China, the Shanghai Composite Index fell 5.33% whereas Hong Kong index closed down by 2.76% on Monday.

Other important Asian markets like Singapore, South Korea and Taiwan fell between 1.19 per cent and 1.54 per cent.

India’s two important indices – 30 share BSE Sensex, and more broad based 50 share NSE Nifty closed down by almost half a per cent on the first trading session of this week.

However, by the end of the trading sessions, there was some sense of stability in the global markets as Europe’s main exchanges saw a more steady start to the week.

All the three indexes of US markets – Dow, Nasdaq and Standard and Poor’s were also trading in positive at the start of the trade.

But concerns over the impact of a slowdown in the world’s second largest economy and its exchange rate policy weighs heavy on investors’ mind.

Indian stocks have already suffered massive losses last week as BSE Sensex lost 2.68% of its value, total loss this month so far stands at 5% till Monday.

NSE Nifty has also lost more than 5% of its value in the first seven trading session of this year.

On Monday, Chinese authorities tried to calm down the frayed nerves of global investors as the People’s Bank of China set the midpoint for the Yuan at 6.5626 per dollar, half a per cent higher than the spot closing of Yuan.

Peoples Bank of China had already set a stronger daily guidance rate for the Yuan on Friday, following a sequence of eight weak reference points that had culminated in the biggest one day drop in five months last Thursday.

Total depreciation of Chinese currency last week stands at around 1.5% on the back of around 5% depreciation last year.

But these steps may not be enough as just last week IMF Chief Christine Lagarde had called for more clarity in the Chinese economic policies.

Commenting on the re-balancing process by the Chinese authorities, Christine Lagarde had said it was a bumpy process and its effects were being felt worldwide which reinforced the need for more clarity on policies, especially ‘exchange rate policy’.

Last December, IMF had added Chinese Yuan as one of the reserve currencies in its drawing rights basket long dominated by Dollar, Euro, Pound and Japanese Yen. The multinational lending body expects the countries to maintain a transparent and flexible currency exchange rate policy to be a part of its reserve currency.

NR Bhanumurthy, a professor at National Institute of Public Finance and Policy in New Delhi told Rajya Sabha TV that the recent devaluation of Yuan is moderate compared to the changes effected last year.

He said the move was aimed at revival of domestic economy of China and support its dwindling exports.

“Currency manipulation is part of international trade and Chinese were already manipulating their currency by holding it at an artificial rate earlier also”, added Bhanmurthy.

Bhanumurthy said that devaluation of Chinese currency may impact Indian stock markets in short term but its medium term and long term impact would be minimal.