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Stocks tumble on China instability amid further devaluation of Yuan

Jan 07, 2016 07:04 PM EST

The adverse conditions in Chinese economy have once again created tremors in the global bourses as the unexpected devaluation of Yuan shaken the markets. This time the main culprit was the China instability factor that sent global stocks spiraling down for the second time this week. All the major indices S&P 500 index, Dow Jones, Nasdaq and CSI 300 fell as traders preferred to get out of the risky assets. 

China's central bank devalued renminbi by 0.51 percent overnight. This is for the eighth time, Chinese government devalued Yuan and the biggest since August 2015. The equities on selling side accounted for 85 percent of the volume on New York Stock Exchange (NYSE). 

This clearly shows the undercurrent market tone was how much negative. S&P 500 index fell 1.4 percent. Dow Jones Industrial Average shed 229 points and Nasdaq Composite index dropped by 1.8 percent. 

According to Financial Times, all the ten sectors in S&P 500 index composition suffered losses. Consumer discretionary, consumer staples, telecom and utilities segment suffered losses in range of 0.4 percent to 0.9 percent. Technology, financials, healthcare, industrials, materials and energy stocks fell from 1.1 percent to 1.8 percent range.

The CSI 300 index comprises stocks in Shanghai and Shenzhen. The index fell 12 percent in 2016 so far. China's central bank announced on Thursday (7 January 2015) that it would release $10.6 billion into the financial system. Chinese central bank already pumped in $20 billion on Tuesday. 

The CSI 300 index for Chinese stocks tumbled seven percent and hit the lower circuit breaker for second time this week. Trading in Chinese bourse was suspended for 15 minutes after the CSI 300 index dropped by five percent, as reported by WVTM13

The lower Yuan is expected to boost foreign trade of China thus boosting its economy. The devaluation of renminbi will make Chinese exports very competitive in the global markets.

The US markets suffered losses this week, but market mayhem on Chinese bourses was recorded following the Yuan devaluation for eighth time. The steep drop of CSI 300 index further highlights the weak performance in the Chinese economy, observe analysts in a report published by Deseret News.

Considering the uncertainty in the global stocks and adverse conditions in the Chinese economy, traders were switching over to safe havens. As a result, gold rose 0.94 percent registering total gain of four percent in 2016 so far. It'll be tough for Chinese companies, which pay in dollars, and will tighten monetary conditions. 

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