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Stocks extend drop in China; yen hits key level: markets wrap

Stocks extend drop in China; yen hits key level: markets wrap
A view of the offices of Standard and Poor's in New York, New York, USA, on 08 December 2011. (Photo: EPA / Justin Lane)

A selloff in Chinese equities deepened on Monday as the nation’s worsening property slump damped market sentiment. The yen weakened through a key level against the dollar, triggering speculation authorities may intervene to support the currency.

An Asian equity gauge was set for the lowest close since June as stocks fell in Hong Kong and mainland China. The CSI 300 Index, which is the benchmark of onshore Chinese shares, is now close to erasing all of the gains it made after the Politburo meeting last month amid signs of deterioration in the economy while the offshore yuan hovered near its weakest level this year. 

Country Garden Holdings Co., once China’s largest private-sector developer by sales, is in the spotlight as the company is at risk of joining a slew of defaulters if it fails to make coupon payments on two dollar bonds within a 30-day grace period. Its shares dropped as much as 15% in Hong Kong on Monday. 

Investors at the moment are not pricing in the possibility that Chinese officials come in with the necessary toolkit to improve the situation, according to Yan Wang, chief emerging-market and China strategist at Alpine Macro Inc. 

“There’s plenty of pessimism,” he said on Bloomberg Television. “Some of the developers obviously are trading at very depressed levels. So the market is not pricing for that.”

Adding to the jitters is news that one of China’s largest private wealth managers missed payments on investment products sold to the nation’s high-net worth clients and corporations, stoking fears more defaults may happen in such products.

Meanwhile, the yen steadied after breaching its year-high level of 145.07 versus the dollar as investors started to monitor for any signs the government may intervene as it did last year. The currency weakened for five consecutive days through to Friday while an index of dollar strength has advanced over the last four weeks with elevated Treasury yields.

“Lack of verbal intervention so far suggests potential patience from them,” strategists at Saxo Capital Markets, including Charu Chanana, said of possible currency intervention by Japan’s officials in a note. “This week’s GDP and CPI data in Japan could be key, as will be the US data such as retail sales which, if firmer, could continue to push yields higher.”

Treasuries extended their declines after producer prices in the US on Friday increased more than expected, threatening to help keep rates higher for longer. Yield on New Zealand’s 10-year bond rose to the highest since 2011, following the moves in the US bonds.

“Overvalued”

The US trading session on Friday saw a slide in tech mega caps and mixed economic data left stocks weak and struggling for direction. In choppy trading, the S&P 500 closed at a one-month low with a drop of just 0.1%. The Nasdaq 100 notched its longest weekly losing streak this year, hovering around 15,000. Nvidia Corp. — which has more than tripled in 2023 — extended a four-day decline to 10%. 

Bill Gross, the one-time bond king, said stock and Treasury bulls are wrong as both markets are “overvalued”.

The former chief investment officer of Pacific Investment Management Co. told Bloomberg Television that the fair value of the 10-year Treasury yield is about 4.5%, compared with the current level of 4.15%. DM

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