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:
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.