“Beneath all of the financial turbulence there lurks, in my view, a credit crisis; I fear the worst now,” UBS economic adviser George Magnus told Bloomberg TV today. The reform agenda “has stalled,” he said, and “things are looking much bleaker for China going forward.”
And so on Monday, we got another flavor of it.
The Shanghai Composite index plunged 5.3%, to 3016, down 15% so far this year. The Shenzhen Composite fell 6.6%. Hong Kong’s Hang Seng fell 2.8% to 19888, below 20000 for the first time since June 2013, and down 30% from its April high.
Everyone had hoped that China’s “National Team” would jump into the fray and bail everyone else out, but it didn’t. And the People’s Bank of China didn’t offer any big new remedies either. But it did stabilize the yuan after it had dropped 1.5% against the dollar last week, and about 6% since mid-August.
In Hong Kong, interbank yuan lending rates broke all records since the Treasury Markets Association started compiling the data in June 2013, with the overnight Hong Kong Interbank Offered Rate spiking 939 basis points to 13.4%.
And copper did it again, ratting on China’s real economy. Copper goes into anything from skyscrapers to smartphones. China is the world’s largest copper consumer, accounting for over 40% of global demand. And on Monday, copper dropped 2.6% to $1.97 per pound, the lowest level since May 2009.
Buffeted by, among other things, fears about slowing demand from the industrial sector in China, oil plunged – with WTI down 6.1% to $31.13 a barrel
To prop up the yuan and counter the impact of capital flight, China had dumped $510 billion of foreign exchange reserves last year, drawing them down to a three-year low of $3.33 trillion. And that was just the beginning.
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