A pedestrian walks past an electronic board showing the Japan’s Nikkei average outside a brokerage in Tokyo. Japanese stocks fell 2.2% yesterday after China’s central bank weakened the yuan – sparking a sharp strengthening of the yen, hurting exporters and tarnishing sentiment in a market already on edge over geopolitical tensions and signs that China’s economy is slowing. 



Asian stocks slid across the board yesterday after China again guided the yuan sharply lower while Shanghai shares tanked more than 7% and triggered a stock market circuit breaker for the second time this week. 
Share trade was suspended for the rest of the day. 
The new rules Chinese authorities unveiled this week, which restrict selling by large shareholders, did not go down well with investors, and provided little tonic. 
“This is crazy. Chinese regulators set off on this path in July and they cannot get out of it. They have ruined whatever hope investors still had in the market,” said Alberto Forchielli, founder of Mandarin Capital Partners. 
With risk sentiment in tatters, spreadbetters forecast a significantly lower open for Britain’s FTSE, Germany’s DAX and France’s CAC. 
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 2%, hitting its lowest level since late September. Australian shares lost 2.2% and South Korea’s KOSPI fell 0.8%. Japan’s Nikkei shed 2.2%. 
The health of the Chinese economy resurfaced as a topic of key concern after rattling the markets last August when Beijing began devaluing the yuan.  “Geopolitical tensions stemming from Saudi-Iran tensions and North Korea’s nuclear test had already heightened the ‘risk off’ mood. Resurfacing China risk was the extra psychological blow to the markets that led to the selloff in equities,” said Takashi Hiroki, chief strategist at Monex Securities in Tokyo. 
Shares in Asia extended losses and regional currencies sank yesterday after the People’s Bank of China (PBoC) set the yuan midpoint rate at 6.5646 per dollar prior to the onshore market open, 0.50% weaker than the previous fix 6.5314. 
It was the biggest fall between daily fixings since August and the eighth day in row for the PBoC to set a lower guidance rate. 
Spot yuan fell to 6.5945 to the dollar, its weakest since February 2011. Other regional currencies followed suit. Against the dollar the South Korean won touched a four-month low, the Malaysian ringgit slumped to a three-month trough and the Singapore dollar hit a six-year low. 
The Australian dollar, often used as a proxy for China-related trades, fell to a two-month low of $0.7025. 
Financial markets fear that Beijing, in a bid to help exporters, is allowing the yuan’s rapid depreciation to accelerate, which would mean China’s economy is even weaker than had been imagined. This could therefore spark another wave of competitive devaluations around Asia and in other key economies. US Treasuries gained from a consequent flight to quality. The benchmark 10-year note yield sank nearly 10 basis points to its lowest since mid-December. The yen, another beneficiary in times of perceived global turmoil, also attracted bids. The dollar fell to a 4-1/2-month low of 117.66 yen. 
The greenback was also weighed down after the Federal Reserve’s December policy meeting minutes suggested further US rate increases would be gradual because of concerns about persistently low inflation. The euro was up 0.4% at $1.0824 with the dollar on the back foot. 
Brent crude oil fell to $33.09 a barrel, its lowest since June 2004. Data overnight showed a big build-up in US gasoline stocks, adding to fears of a growing global glut. 
Brent crude retreated to a new 11-year low as Chinese economic woes further weakened sentiment that was already made fragile by oversupply concerns, although the oil market has shrugged off geopolitical developments such as Saudi-Iran tensions and North Korea’s nuclear test.
Meanwhile, China’s securities regulator issued rules yesterday to restrict share sales by listed companies’ major shareholders, seeking to arrest the market’s free-fall, but the move threatens to further weaken investor confidence.  The restrictions were announced as stocks tumbled 7% half an hour into trade, triggering a newly-introduced circuit breaker. The sell-off was in part due to fears that a regulatory ban on share sales imposed during last year’s summer rout will expire on Friday. 
Major shareholders must not sell more than 1% of a listed company’s share capital through stock exchanges’ centralised bidding system every three months, the China Securities Regulatory Commission (CSRC) said on its website.  In addition, major shareholders must file their plans 15 trading days in advance of sales, according to the rules, effective January 9. 
The regulator said the rules were aimed at avoiding the effect of “intensive and massive” share reductions from listed companies’ senior executives and big shareholders – defined as investors with a more than 5% stake. 
The new rules “will help stabilise market expectations and ease panic,” the CSRC said, adding it did not signal an imminent exit of the “national team” of investors who participated in the market’s rescue last year. 
Some analysts said the rules were less draconian than expected, as the restrictions do not apply to shares acquired in the secondary market, or share sales outside the exchanges’ bidding system, such as block trades, or negotiated transfers. 
According to the rules, “institutional investors that built large stakes in the market over time will not be restricted in their sales,” said Oliver Barron, China Head of Analysis at China-focused investment bank NSBO.  Nevertheless, he felt market intervention would only hit investor confidence in the long run. 
“Many foreign investors wanted to believe that the lesson the government learned from the summer was that intervention doesn’t work. Today’s move confirms the opposite: that the government simply believed this summer’s intervention just wasn’t strong enough. The government has confirmed that it will continue to intervene as and when needed.”