FX.co ★ Chinese yuan to wreck stock market?

Some experts believe that the yuan devaluation can have unpredictable consequences. Stock markets have already reacted to it due to which the Shanghai B-share index of dollar-denominated stocks plummeted by almost 7% during the Asian session.

Lately, the Chinese market has been put under great pressure. As a result, the renminbi dipped down to 6-year lows at 6.7379 on the back of the surging US dollar. Additionally, inflation accelerated significantly. These factors brought on a fall in the dollar-denominated stocks in the Chinese market. This drop became the worst since January 2016.

According to Bloomberg, experts cannot clearly explain such a fall. They believe that the tumble was triggered deep concerns of global investors regarding the yuan depreciation.

Remarkably, the yuan rate has decreased by 1% since early October. It happened after the renminbi joined the International Monetary Fund's basket of reserve currencies. Before that the People’s Bank of China tried to support the national currency by any means. Last month $18.8 billion were spent for this purpose.

Some market participants suppose that the current slump was predictable as the market of dollar-denominated stocks is a bubble. Experts say that shares in this market are traded 30 times higher than the reported earnings. Besides, analysts underscored weak China’s trade balance in September. Investors are getting concerned over the Chinese economy causing turmoil in the currency market. Last month the dollar-denominated export was down by 10%, while import fell by 1.9% due to sluggish domestic and foreign demand. A lack of domestic demand is the main issue of concern. Import was falling amid rising oil prices that skyrocketed to $50 per barrel in September from $30 per barrel last year. Without such a rise, imports could be even worse. Besides, last month the yuan weakened by 5% from last year.