Chinese stocks headed for their worst start to a year on record after manufacturing data showed evidence of a deepening economic slowdown and the yuan sank to its lowest in five years.
The Shanghai Composite Index declined 3.9 percent at 11:12 a.m. local time, the biggest first-day decline since trading began in 1990. The Hang Seng China Enterprises Index extended the largest annual drop among Asian benchmark gauges. The offshore yuan depreciated 0.6 percent.
China’s first economic reports of 2016 showed the official purchasing managers index weakened for a fifth straight month, the longest such streak since 2009, despite a series of interest-rate cuts and stepped up fiscal stimulus. While the Shanghai Composite ended higher for 2015, the H-share gauge in Hong Kong sank 19 percent on concern the deteriorating economy and weaker yuan will hurt the outlook for earnings.
‘The weaker PMI and the weaker yuan are the likely triggers,” said Michael Every, head of financial markets research at Rabobank Group in Hong Kong. “Fundamentals will see the market struggle, especially as I think the yuan in Shanghai and Hong Kong have a lot further to fall.”
A ban on selling by major stockholders on mainland exchanges is due to expire this week. Goldman Sachs Group Co. estimates the restriction affected investors with over 1.2 trillion yuan ($185 billion) of holdings and lifting the restriction may create a “liquidity risk,” according to a Dec. 3 note.
The Hang Seng Index fell 2.1 percent after last year’s 7.2 percent decline. Bank of East Asia Ltd. sank the most since July, while Li & Fund Ltd. tumbled 4.9 percent. The Hang Seng China Enterprises dropped 2.5 percent, extending 2015’s 19 percent plunge. The CSI 300 Index declined 3.4 percent.
“The overall market’s mood is still bearish after weak PMI readings,” said William Wong, head of sales trading at Shenwan Hongyuan Group Co. in Hong Kong. “Investors are also concerned that a removal of major shareholders’ selling ban would weigh on the indexes.”
The China Securities Regulatory Commission announced July 8 that investors with holdings exceeding 5 percent as well as corporate executives and directors would be prohibited from selling stakes for six months. The rule, which followed the suspension of initial public offerings and curbs on short-selling, was intended to stabilize capital markets amid an “unreasonable plunge” in share prices, according to the securities regulator.
Today’s declines may test a stock-market circuit breaker that was put in place effective Monday. Under the new mechanism, a move of 5 percent in the CSI 300 will trigger a 15-minute halt for stocks, options and index futures, while a move of 7 percent will close the market for the rest of the day.
The purchasing managers index edged up to 49.7 last month from a 3-year low of 49.6 in November, the National Bureau of Statistics said Friday. The non-manufacturing PMI, meanwhile, rose to 54.4, the highest since August 2014. The private Caixin China Manufacturing PMI index decreased to 48.2, down from a five-month high of 48.6 in November. Numbers below 50 indicate deterioration.
“It is certainly an inauspicious start, but it is not indicative of performance down the road,” said Bernard Aw, a strategist at IG Asia Pte in Singapore. “Markets are expecting more rate cuts to materialize, that could support the equities. Moreover, China still needs to adjust to the gradual withdrawal of rescue measures, where the scale of the volatility resulting from the acclimatisation is far from certain.”
While mainland authorities are lifting support measures for the stock market imposed at the height of a $5 trillion rout, Chinese stocks in Hong Kong are trading at some of the cheapest levels among global equities as foreign investors head for the exits. Dual-listed stocks are 40 percent more expensive on the mainland than in Hong Kong, according to the Hang Seng China AH Premium Index.
China will also scrap the upfront payment rule for IPOs from Jan. 1 as regulators seek to create a more level playing field for the country’s army of individual investors before the start of more substantial reforms. The statement last week by the China Securities Regulatory Commission confirmed plans first announced in November, when the regulator allowed new share sales to resume.
Also from this week, stock-index futures trading starts at 9:25 a.m., 10 minutes later than previously, while the afternoon session will end at 3 p.m., which is 15 minutes earlier.
Crude Oil, Other Commodities Closing Price for Monday
Brent crude oil, Nigeria’s crude oil benchmark, gained 47 cents to $55.88 per barrel on Monday, while the US crude oil expanded by 50 cents to $52.77 per barrel.
Gold for February delivery fell $1 to $1,855.20 an ounce. Silver for March delivery fell 7 cents to $25.48 an ounce and March copper was little changed at $3.63 a pound.
The dollar fell to 103.80 Japanese yen from 103.83 yen. The euro fell to $1.2139 from $1.2167.
Wholesale gasoline for February delivery rose 1 cent to $1.56 a gallon. February heating oil rose 2 cents to $1.59 a gallon. February natural gas rose 16 cents to $2.60 per 1,000 cubic feet.
Gold Gained Ahead of Joe Biden Inauguration 2021
Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.
The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.
He said, “The key factor appears to be the (U.S.) currency.”
As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.
Also, the effectiveness of the vaccines can not be ascertained until wider rollout.
Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.
Crude Oil Holds Steady Above $55 Per Barrel on Tuesday
Brent Crude oil, against which Nigerian crude oil is priced, rose from $54.46 per barrel on Monday to $55.27 per barrel as of 9:03 am Nigerian time on Tuesday.
Last week, Brent crude oil rose to 11 months high of $57.38 per barrel before pulling back on rising COVID-19 cases and lockdowns in key global economies like the United Kingdom, Euro-Area, China, etc.
While OPEC has left 2021 oil demand unchanged and President-elect Joe Biden has announced a $1.9 trillion stimulus package, experts are saying the rising number of new cases of COVID-19 amid poor vaccine distribution could drag on growth and demand for oil in 2021.
On Friday, Dan Yergin, vice-chairman at IHS Markit, said in addition to the stimulus package “There are two other things that are going with it … one is of course, vaccinations — in the sense that eventually this crisis is going to end, and maybe by the spring, lockdowns will be over.”
“The other thing is what Saudi Arabia did. This is the third time Saudi Arabia has made a sudden change in policy in less than a year, and this one was to announce (the) 1 million barrel a day cut — partly because they are worried about the impact of the surge in virus that’s occurring,” he said.
Also, the stimulus being injected into the United States economy could spur huge Shale production and disrupt OPEC and allies’ efforts at balancing the global oil market in 2021.
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