Impact on Global Markets
It hasn’t been the best of the starts to the New Year with China’s pursuance of an aggressive Yuan weakening strategy sending shock-waves to global markets, erasing over USD 2 trillion of investor wealth. Amidst fears that China may have started a global currency war, panic-stricken investors have been running helter-skelter after China devalued the Yuan to the lowest level since March 2011, underlying the desperation on part of policymakers to steer the world’s second biggest economy away from a hard landing.
China’s recent weaker Yuan fixing moves follow data showing a tenth straight contraction in the country’s manufacturing sector whilst a commodity downturn and soft demand have raised the risks of deflation in the world’s second biggest economy. Notwithstanding its superior-macro fundamentals, India too, has fallen prey to a global sell-off with the Sensex shedding nearly 5 per cent in its first full trading week of 2016. Indian exporters remain on guard as Yuan weakness threatens to curb exports to China, while local manufacturers face the threat of an influx of cheap Chinese imports.