China woes weigh on Asia, yen up as BoJ holds fire

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HONG KONG: Shanghai led most Asian shares lower Tuesday as China’s economic woes keep investors on edge, while Japan’s Nikkei gave up early gains and the yen rallied after the country’s central bank held off fresh measures to shore up its torpid economy.

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While the China-fuelled global volatility that has characterized much of the past month’s trading has eased off, the morning’s confidence waned as traders moved out of higher-yielding, or riskier, assets while they await a key US interest rate decision this week.

The Australian dollar, given an early boost by news the popular Malcolm Turnbull would replace Tony Abbott as prime minister, relinquished initial gains.

Traders in Shanghai took more money off the table, as a string of weak data trumps a weekend announcement that Beijing was planning a liberalization of state-owned enterprises, including some privatization.

Soft readings Sunday on industrial output, retail sales and investment—combined with a contraction in factory activity and plunging producer prices—have added to fears the Chinese economy and key driver of world growth is heading for a hard landing.

Also, Beijing’s decision to devalue the yuan last month reinforced fears the leadership is struggling to control the crisis, sending shockwaves through world markets.

“Signs that China’s economy is going through a deeper slowdown are becoming more clear,” John Teja, a Jakarta-based director at PT Ciptadana Securities, said.

Analysts also said a crackdown on illegal trading had also hit the market. On Monday authorities said they were cracking down on thousands of stock accounts linked to illegal trading, in its latest bid to restore order to markets pummeled by a rout that has wiped trillions off valuations in the country in three months.

“The market took the crackdown on accounts engaged in illegal trading harder than what the market regulator said,” Haitong Securities analyst Zhang Qi told Agence France-Presse. “And the falling prices in turn strengthened selling momentum.”

Leaders have launched an unprecedented rescue package—including government-backed entities buying equities—since the Shanghai market began crashing. It has lost about 40 percent since hitting a June 12 peak.

On Tuesday Shanghai finished 3.52 percent down, the heaviest loss since late last month and extending a 2.67 percent fall suffered Monday.

Hong Kong lost 0.25 percent in late trade and Sydney—where several firms with links to China are listed—closed down 1.53 percent.

Despite recent turmoil across world markets and data showing Japan’s economy remains weak, the BoJ on Tuesday refused to unveil any further stimulus saying it “has continued to recover moderately.”

However, it did indicate “exports and production are affected by the slowdown in emerging economies” and analysts said further monetary easing measures were still likely to come.

Japanese growth remains tepid in the face of two years of massive government spending and central bank monetary easing. A promised inflation surge, the cornerstone of leaders’ drive to reignite the economy, has also not materialized.

Caution returns
The yen rebounded against the dollar and euro. The greenback was at 119.60 yen in late trade, compared with 120.51 yen earlier. And the European single currency was down more than a yen from the morning at 135.11 yen.

Tokyo’s Nikkei pared gains, ending 0.34 percent up after sitting 1.33 percent higher at lunch.

Australia’s dollar, which is closely linked to China’s strength, sank back after surging against the greenback on news Turnbull had ousted Abbott in a party vote Monday.
The unit was 0.39 percent lower at 71.17 US cents in late exchanges, well off the 71.46 cents touched earlier.

Abbott won power in a general election two years ago but his first budget proved highly unpopular and had to fight off a leadership challenge in February after poor polling and a
serious of gaffes ignited a backbench revolt.

Uncertainty over the Fed’s plans for raising interest rates are keeping investors guessing. While a rate rise is expected by the year’s end, the global ructions unleashed by China’s devaluation last month has complicated bank policymakers’ decision.

With caution returning towards the end of the day, the dollar advanced against riskier emerging currencies.

It was up 0.26 percent against the South Korean won, 0.18 percent higher against the Indian rupee, 0.44 percent up against the Indonesian rupiah and 0.08 percent stronger against the Malaysian ringgit.

AFP

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