Monday 5 December 2016

ISEQ outperforms, just, as China fears rattle nerves

Published 07/01/2016 | 02:30

Traders work on the floor of the New York Stock Exchange. Photo: Reuters
Traders work on the floor of the New York Stock Exchange. Photo: Reuters

Irish and European shares fell on Wednesday and commodities including oil saw big drops after China's central bank set the yuan's reference rate at an unexpectedly weak level.

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The currency intervention echoed the shock depreciation last August that sparked a wave of financial-market turmoil.

China's growing tolerance for a weaker yuan signaled the government is struggling in its efforts to shore up economic growth and stem a rout in its equities. The flight from risk assets Wednesday rekindled concern seen in August, when a shock devaluation sent US stocks to their first correction in four years amid the slowdown would hamper global growth. Disinflation in Europe and a renewed selloff in commodities may make it harder for central banks to meet their policy goals.

In Dublin the ISEQ index of Irish shares dropped more than 1pc to 6,661.83, with negative sentiment sending a slew of big name shares lower. Big declines hit companies across multiple sectors - inclluding hotelier Dalata (-2.96pc), ormonde Mining (-2.93pc), Kingspan ((-2.76pc) and Hibernia REIT (-2.64pc).

The Stoxx Europe 600 Index slid 1.7pc. In Europe, commodity producers and carmakers -- companies with some of the largest sales exposure to China - led declines. Tuesday's rebound from the worst-ever start to the year was short-lived and the Stoxx 600 is down 3.4pc this week. The VStoxx Index, which tracks the cost of options protecting against swings on the Euro Stoxx 50 Index, rose 5.3pc to trade near a three-week high.

US stocks dropped to a three-month low and emerging- market equities fell to the cheapest since 2009. Developing- nation currencies sank to a record as Korea's won weakened after North Korea said it conducted a nuclear test, adding to geopolitical risks already heightened by tensions between Saudi Arabia and Iran. Brent crude reached its lowest level since 2004 on glut concerns. The yen reached its strongest level since October and Treasuries rose for a fifth session on demand for haven assets.

"This is risk aversion right now," Benjamin Dunn, president of Alpha Theory Advisors, which works with hedge funds overseeing about $6bn. "This is like a replay of the same things that moved the markets in August. Not a lot of people had conviction coming into the year after a violently flat to down year and now we're perhaps getting confirmation that China is as bad as people think. We've lost the tailwinds from the Fed and investor enthusiasm and this adds to the mosaic of fear that's out there right now."

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