Singapore: Shares close lower after China's yuan devaluation

CHINA'S shock decision to devalue the yuan has sparked off turmoil in the currency market, led to fears of a currency war developing and sent stocks reeling.

The Straits Times Index (STI) spent the whole of Wednesday in the red before ending a nett 91.57 points or 2.9 per cent lower at 3,061.49, on a high volume of 1.8 billion units worth S$2.1 billion. Included in this was S$1.7 billion worth of volume done in the 30 STI components, which works out to 81 per cent of the whole market's business.

Banks were particularly badly hit, possibly because of concerns over their earnings from China ventures, while commodity trader Noble Group's shares suffered a S$0.065 or 11.4 per cent blow at S$0.505 on a volume of 165 million, making it the index's worst-performing component.

Most penny stocks also ended lower, resulting in a heavily lopsided advance-decline score of 96-432, but there were some gainers - for example IHC, which has not budged from a range of S$0.29-S$0.31 for many months now, continued to hold firm with a S$0.005 rise to S$0.31 on a volume of 46 million.

On the yuan devaluation, Credit Suisse said the move came as a surprise and was likely in response to the very weak exports in July and the broad-based slowdown in overall demand.

"In a dollar strengthening environment, CNY has appreciated against the trade-weighted basket by more than 3.5 per cent in 1H15. . .," it said. "Our initial assessment suggests that the People's Bank of China may be in the process of bringing the exchange rate closer to the underlying trend of the trade weighted currency basket benchmark. This also looks like a pre-emptive move, ahead of the interest rate hike from the US Federal Reserve and potential further dollar strength."