China: The Fear Returns

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From Business Insider:

It’s happening again.

Chinese stocks sold off overnight on concerns policymakers are struggling to stop the tide of capital outflows.

The benchmark Shanghai composite index dropped 6.42% to hit 13-month lows, dragging other Asian markets down with it. Japan’s Nikkei fell 2.35%.

Here’s Bloomberg (emphasis ours):

Outflows jumped in December, with the estimated 2015 total reaching a record $1 trillion,more than seven times higher than the whole of 2014 based on Bloomberg Intelligence data dating back to 2006.

And here’s the chart:wipeoutInvesting.com

As outflows accelerate, pressure is put on China’s currency to devalue. To support the currency, policymakers have been burning through the country’s foreign reserves at a rate of about $100 billion per month.

When China devalued its currency by just a few percent in the summer, it led to a market rout in August known as Black Monday. The Shanghai index collapsed more than 8% and kicked off a month of market turmoil in global share markets.

Meanwhile, oil also fell back below $30 a barrel after a brief but strong bull run to $32, pushed lower by falling Chinese demand and a supply glut.

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