(Bloomberg) — Emerging-marketstocks sank to the lowest since 2009 as China’s move to further weaken the yuan’s reference rate sparked a selloff in mainland stocks that spread throughout developing nations.
The CSI 300 Index of companies listed in Shanghai and Shenzhen plunged more than 7 percent before exchanges were halted by circuit breakers in the first half-hour of trading. South Africa’s rand weakened to a record low against the dollar. The Ibovespa tumbled for a second day as a plunge in Brazilian industrial production added to concern that demand for the nation’s exports will weaken further as China’s economy slows.
Developing-nation equities are on course for the biggest weekly drop since 2011 as China weakened the yuan’s reference rate for an eighth day, fueling concern that the economic slowdown is deeper than official data suggest and dimming prospects for trade with the world’s second-largest economy. The World Bank on Wednesday cut its global growth forecast for 2016 on concern that China’s slowing economy will prolong a commodity slump and recessions in Brazil and Russia. Global markets are facing a crisis and investors need to be very cautious, billionaire George Soros said.
“Overall there is a risk-off cocktail,” said Guillaume Tresca, a strategist at Credit Agricole SA in Paris. “The continued fall in the Chinese stock market is the main reason. The declines in oil prices are disruptive. We expect risk-off to prevail in the short term.”
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China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world, Soros said in Colombo, Sri Lanka. A return to positive interest rates is a challenge for the developing world, he said, adding that the current environment has similarities to 2008.
The MSCI Emerging Markets Index fell 2.8 percent to 738.86 on Thursday. Its 14-day relative-strength index fell to 22.4, below the level of 30 that some analysts see as a signal a market is set to rebound. The developing stock measure has tumbled 7 percent this week, compared with a 5.2 percent drop in the MSCI World Index.
China’s stock exchanges closed at 9:59 a.m. local time, just 29 minutes after markets opened, as the CSI 300 gauge of companies listed in Shanghai and Shenzhen extended this year’s decline to 12 percent. Trading was halted for about half that time after a 5 percent drop triggered an earlier suspension. China’s markets are normally open from 9:30 a.m. to 3 p.m., with a 90-minute break.
“So far this week, almost all the market action has been driven by what’s happening in China,” said Mixo Das, a Singapore-based strategist at Nomura Holdings Inc. “We will continue to see volatility until the yuan stabilizes. Near-term caution is warranted.”
China’s securities regulator suspended the stock circuit- breaker after it triggered Thursday for the second time this week. The Hang Seng China Enterprises gauge of mainland shares listed in Hong Kong tumbled 4.2 percent to the lowest close since October 2011. The biggest exchange-traded fund tracking mainland Chinese stocks slumped 4 percent in New York.