China devaluation clobbers stocks, dollar gains on forex fear

Aug 11, 2015

China’s 2 percent devaluation of the yuan on Tuesday pushed the U.S. dollar higher and hit Wall Street and other global equity markets as it raised fears of a new round of currency wars and fed worries about slowing Chinese economic growth.

U.S. stock indexes slumped more than 1 percent and stocks also fell in Asia and Europe as investors contemplated the implications of a move designed to support China’s slowing economy and exports. The MSCI All World Index .MIWD00000PUS of global shares fell 1.14 percent.

“What is good for growth in China is unfortunately bad for everybody else,” said Bill McQuaker, co-head of the multi-asset team at Henderson Global Investors.

The Dow Jones industrial average .DJI fell 1.35 percent to 17,376.6 while the S&P 500 .SPX dropped 1.18 percent to 2,079.37 and the Nasdaq Composite .IXIC lost 1.6 percent to 5,020.06.

Companies that sell to China were hit hard, with heavy equipment maker Caterpillar (CAT.N) losing 2.62 percent. Energy and materials shares also tumbled on China demand concerns. Natural resource company Freeport-McMoRan (FCX.N) dropped 13.2 percent and Exxon Mobil (XOM.N) sank 1 percent.

The pan-European FTSEurofirst 300 index .FTEU3 lost 1.68 percent, led lower by car makers and luxury goods companies, whose products are now more expensive for Chinese consumers.

Against the trend, Greek shares .ATG gained 2.14 percent after Athens secured a third bailout deal with creditors.

On Chinese stock markets, airlines and importers fell, though exporters rose. The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen lost 0.4 percent and the Shanghai Composite .SSEC closed flat.


China’s move, which the central bank described as a “one-off depreciation” based on a new way of managing the exchange rate that better reflected market forces, triggered the yuan’s biggest fall since 1994, pushing it to its weakest against the U.S. dollar CNY=CFXSin almost three years.

In a potentially worrisome sign, China’s offshore yuan CNH=, a more liquid instrument traded out of Hong Kong, fell 2.9 percent, exceeding the fall in the onshore yuan. It suggests more possible losses for the onshore currency, as the Hong Kong-traded yuan tends to act as a precursor to the onshore.

Emerging market currencies, which have already fallen sharply in the past year as the U.S. dollar has strengthened, slumped again.