Last week, the Asian stock markets, lost $700 billion in market valuation and the slump continued on Monday. A Bloomberg report said that it has been the biggest sell-off in Asian stocks since October.
1. Chinese Yuan falls below sensitive level
On Monday, China's central bank allowed its currency yuan to fall below the politically sensitive level of seven to the US dollar. The currency weakened to 7.0240. The symbolically important benchmark of 7 was last seen breached during the 2008 financial crisis.
2. US-China trade tensions
The USA has had a series of complaints on China's trade practices, a major reason for the ongoing trade tensions between the two countries. A fall in yuan, the American officials say is a tactic to make China's exports inexpensive, giving them an edge over competitors, a AP report said. This allegation could further fuel the trade dispute that started over a year ago.
In 2018, US president Trump imposed tariffs on Chinese goods so as to force Beijing to narrow the trade deficit between the two countries (in simple words, he complained that China buys fewer goods from the US than the other way round).
The gap between the imports and exports between the two stood at $419.5 billion last year. He also accused Chinese firms of stealing intellectual property of American companies.
As the two largest economies in the world continued to impose tariffs on each other's exports, international trade growth was hampered and business investments were stalled due to the uncertainty over trade.
On Thursday, Trump announced additional tariffs of 10 percent, making all Chinese goods entering the USA from 1 September 2019 subject to some kind of duties.
3. China’s services sector saw slowest growth in 5 months in July
The Caixin/Markit services purchasing managers' index (PMI) fell to 51.6 in July, the lowest reading since February, from 52.0 in June.
4. Valuations of the world’s biggest banks sank to record lows
China's "big four" state-owned banks lost USD 14 trillion in assets after their valuations fell to a new record low on Monday as investors worried that Beijing may encourage these banks to bail out their struggling smaller peers.
Industrial & Commercial Bank of China, the world's largest bank in terms of assets, lost USD 11 billion in market valuation last week after it injected capital in a troubled regional bank as part of the Chinese government's rescue plan.
A rise in corporate defaults, a slowdown in the Chinese economy and the existing trade tensions hurt investor sentiments.
5. Hong Kong Protests
The MSCI Hong Kong Index declined for the ninth consecutive trade session on Monday by 2.5 percent, the longest losing steak since the 1997 handover when Britain passed control of the territory to Mainland China.
The ongoing pro-democracy protests in the city has crippled everyday life for residents. An estimated 200 flights were cancelled and many railway lines shut.
The protests have brought uncertainty about the city's future and eroded investor confidence especially in the real-estate, luxury retail, and tourism sectors.
6. Japan-South Korea trade tensions
Tokyo announced tightened restrictions on exports of some hi-tech materials to South Korea that could hurt the latter's tech firms. Prime Minister Shinzo Abe also formally removed South Korea from its "white list" of 27 countries, which have preferred trade status.
On Sunday, South Korean Prime Minister Lee Nak-yon urged Tokyo to correct its "reckless and risky" decision to curb exports. It is likely that Seoul will devise ways to retaliate, roiling markets further.
7. Debate over Kashmir
In India, Home Minister Amit Shah on Monday moved a bill in the Rajya sabha which proposes revocation of most sections of Article 370 to reconstitute the state of Jammu & Kashmir. Article 370 provides special status to the state of Jammu & Kashmir.
The uncertainty over the security situation in Kashmir further hurt investor sentiment.
8. FPIs sell-off
On Friday, FPIs (Foreign Portfolio Investors) sold Indian stocks to the tune of Rs 2,888 crore as against Rs 2,812 crore inflows from domestic investors.
FPIs have offloaded more than Rs 15,000 crore worth of stocks in July, wiping out two-third of the gains made from the lows in 2019.
The withdrawals have intensified following the Budget 2019 proposal of a higher surcharge on those earning over Rs 2 crore, which will include individuals, HUF and association of persons or body of individuals (domestic or foreign).