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China stocks rattled by Moody’s sovereign downgrade

Wednesday 03.05 BST

Overview

China’s stocks and currency sank on Wednesday after Moody’s downgraded its credit rating for the world’s second-largest economy. Other stock markets around the region were buoyed by gains for Wall Street that left the S&P 500 just a few points short of a record high.

Hot topic

Moody’s cut China’s credit rating by one notch to A1 from Aa3 and said it expected the country’s “financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows”. The agency lifted its outlook to stable from negative, saying the risks at the A1 level were “balanced”.

The news rattled China’s financial markets, with the Shanghai Composite down 1 per cent and facing one of its biggest one-day drops this year, while the technology-focused Shenzhen Composite was down 0.6 per cent, narrowing from a drop of as much as 1.8 per cent. The CSI 300, which includes the top 300 stocks on both exchanges, was down 0.8 per cent.

The offshore renminbi, which is traded outside the mainland and not subject to a daily trading band, narrowed early declines to be 0.05 per cent softer at a one week-low of Rmb6.884 per dollar. The onshore version of the currency, which trades 2 per cent either side of a daily level fix set by China’s central bank, was 0.11 per cent weaker against the dollar at Rmb6.8931.

The cut puts China’s credit rating on par with countries such as Japan, Estonia and Saudi Arabia, and one notch behind other sovereign borrowers such as Taiwan and Macau.

Equities

Hong Kong’s Hang Seng was down 0.3 per cent, as index heavyweight Tencent, the Chinese social media giant, fell 2 per cent from a record high. The Hang Seng China Enterprises index, which tracks mainland companies listed in the territory, was off by 0.5 per cent.

Japan’s Topix was up 0.4 per cent, while Australia’s S&P/ASX 200 gained 0.2 per cent.

Singapore’s Straits Times was up 0.2 per cent. Noble Group, the embattled commodities trader listed on the island state’s exchange, was down 10.7 per cent as it resumed trading after a one-day halt and said talks with potential strategic partners were ongoing.

The S&P 500 gained 0.2 per cent overnight to 2,398.4, leaving it 3.9 points short of a record close.

Forex

The euro was up 0.1 per cent at $1.1189 in Asia. On Tuesday, the single currency sank 0.5 per cent from Monday’s eight-month closing high despite the release of solid economic data from around the region.

The dollar index, a measure of the US currency against a basket of global peers, was fractionally lower at 97.324, but still hovering close to a six-month low. Minutes from the Federal Reserve’s May meeting will be released later today and may give hints about the prospects for a rate rise at the central bank’s June meeting.

The Japanese yen was flat at ¥‎111.80 per dollar.

Commodities

Oil prices were on track for a six-day winning streak, their longest run since early April. Brent crude, the international benchmark, was up 0.4 per cent in Asia to $54.34. Prices have been buoyed by expectations Opec countries will use a meeting on Thursday in Vienna to agree to extending supply cuts beyond March 2018.

West Texas Intermediate was up 0.3 per cent at $51.64.

Gold was flat at $1,251.33 an ounce.

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