China's
beleaguered stock market endured yet another sell off on Friday, shedding 4% to
wipe away the remaining gains from a dramatic market rescue launched by Beijing
in early July.
The benchmark Shanghai
Composite closed just north of 3,500 points, a level that many
analysts believe Beijing will try to defend at all costs. Even with a late rush
of buying, the index closed down more than 11% for the week.
Many companies listed in Shanghai,
including some large state-owned firms, fell by the maximum daily limit of 10%.
The smaller Shenzhen Composite index shed 5.4% on Friday, taking losses for the
week to 11.5%.
Hong Kong's Hang
Seng index, which has fared better than mainland China markets, also slipped
into a bear market on Friday, closing more than 20% below its recent high in
late April.
The rough trading
day extends a wild period in Chinese markets.
The first signs of
trouble came in June, after the Shanghai Composite peaked at more than 5,100
points, a gain of roughly 150% over the previous 12 months. When the bubble
burst, the index lost 32% of its value in just 18 trading sessions, reaching a
low of 3,507 points on July 8.
Beijing reacted
forcefully. The central bank cut interest rates to a record low, regulators
suspended new market listings, and threatened to throw short sellers in jail.
The country's
market regulator organized the purchase of shares using cash supplied by the
central bank. Companies were allowed to suspend their own shares -- at one
point 50% of all listed stocks were frozen.
Analysts have maintained that market
volatility would have a limited impact on China's economy. Relatively few
Chinese are invested in the stock market, and the vast majority of Chinese
companies still have access to financing.
Concerns are
mounting, however, especially over China's currency and the strength of the
country's factory sector. On Friday, a key gauge of manufacturing activity
tumbled to its lowest level in 77
months. And there are signs of slowing
consumer demand.
Beijing has also
allowed the yuan to devalue in recent weeks, a move that some think was
designed to boost the country's exporters. If other countries choose to also
devalue their currencies in an attempt to keep their exporters competitive, the
retaliatory actions could spark a currency war Asia.
Vietnam, for
example, has already widened the dong's trading band on two occasions, and
devalued the currency by 1%.
Malaysia and
Indonesia, in particular, appear to be in trouble. Over the past year, the
Malaysian ringgit has lost nearly a quarter of its value against the dollar.
Indonesia's rupiah has shed 18% over the same period. Both currencies are now
at their weakest level since the Asian financial crisis, and losses are piling
up.
China worries have
spilled over into global markets. On Thursday, the Dow fell 358 points to close below 17,000 for the first
time since last October, a performance that analysts attributed to China fears,
sinking oil prices and uncertainty over the U.S. Federal Reserve's plans.
Many investors and
economists had bet on a Fed rate hike in September, something it hasn't done
since 2006.
But in the Fed's
minutes published Wednesday, the Fed's committee members sent the market mixed
messages.
A rate hike would
increase borrowing costs -- interest on loans -- for companies in emerging
markets. It would also make American debt more attractive to investors, meaning
emerging market debt could see a sell off.
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