Monday, 11 January 2016

China rout: A worry for India

Yes, it’s China once again!

Stock markets globally took a hit last week after the Chinese central bank devalued the yuan sharply, a move that led to such a sharp decline in the Chinese stock market that trade had to be suspended twice.

China’s move to devalue the Yuan to the lowest level since March 2011 rattled investors. India too could not help falling prey to a global tsunami that wiped out more than USD 4 trillion from equities worldwide this year, reigniting fears of a fresh global currency war while signalling heightened worries over the health of the Chinese economy.

Indian markets hit Chinese wall

The People’s Bank of China lowered the value of the Chinese currency by 0.51 per cent to 6.5646 against the US dollar, putting stock markets and currencies worldwide under pressure.

The 30-share benchmark index, Sensex lost 4.68 per cent over the week, which made it the worst start to the calendar for the markets since the 5 per cent crash in the 30-stock pack in the first trading week of 2009. Even the weekly fall was at its worst in over four months.

Yuan decline to hurt India’s flagging exports

A continued devaluation of the Yuan by China may come as a further blow for the country’s exporters already reeling under the effects of a global slowdown, weighing on the outlook for Asia’s third biggest economy. India's exports have already been in a contraction mode for the past twelve months, plunging by 18.46 per cent to USD 174.3 billion year on year in April-November 2015, a sign that India isn’t immune to the current bout of global volatility amid a faltering Chinese economy, disinflation risks and the start of the US Federal Reserve’s interest rate tightening cycle.

Moreover, Yuan’s devaluation may also boost Chinese imports to India by making them cheaper, hurting domestic manufacturers.

The recent depreciation may also trigger a fall in rupee to keep it competitive in the export market. 

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