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Asia: Stocks rally amid return to risk as Chinese assets rebound
[WELLINGTON] Asian stocks reversed losses and high-yielding currencies jumped after China refrained from another cut to the yuan's reference rate, providing some reassurance to investors concerned this week's turmoil in Asia's largest economy could spark a fresh global crisis.
Japanese shares rose for the first time in five days, helping the regional benchmark trim its worst weekly rout since 2011, and equities in Hong Kong and Shanghai rallied after China kept the yuan's so-called fixing little changed from Thursday, at 6.5636 per dollar. The South African rand, Korean won and Australian dollar led currency gains, while the yuan extended its advance into a second day in Hong Kong. US crude oil rallied beyond US$34 a barrel after sliding to a 12-year low last session as anxiety over China added to persistent concerns over a global glut. The yen fell with bonds and Treasuries.
More than US$2 trillion has been erased from the value of global equities this week as the new year kicked off with a renewed bout of concern about China. The country abandoned a circuit-breaker system aimed at stymieing a stock rout after it was triggered by selloffs twice this week and baffled investors with a seemingly contradictory approach to the yuan, fueling greater anxiety over policy makers' abilities to manage the slowing economy. The tumult in China comes as oil's drubbing stokes a separate set of concerns: over the prospect for global disinflation and its potential impact on central bank policy.
"They are trying to set some calm in the market," said Angus Nicholson, a Melbourne-based analyst at IG Ltd. "Risk assets are back on and that's what markets wanted to happen. They want the Chinese government to get heavily involved, stopping the weakening of the currency. This should bring an element of calm to markets." The tumultuous start to 2016 has traders and analysts second-guessing their predictions for the year, with US equities also posting their worst four-day annual start ever last session. The current challenges faced by markets are akin to those seen during the 2008 global financial crisis, according to billionaire investor George Soros, who told an economic forum in Sri Lanka Thursday that China's problems are being transferred to the rest of the world.