Yuan devaluation continues to hit shares

LONDON

MARKETS tumbled for a second day in a row after another fall for the Chinese yuan following a surprise devaluation of the currency.

The FTSE 100 Index fell 93.4 points at 6571.2, after China cut the value of the yuan by almost four per cent over the last two days. European exchanges were down sharply, with Germany’s Dax and France’s Cac 40 each lower by more than three per cent. In New York the Dow Jones Industrial Average was down more than 200 points in early trading.

On currency markets, traders were mulling official UK figures that showed annual pay growth in the three months to June had slowed to 2.4 per cent, down from 3.2 per cent in the previous month’s figures.

A slowdown in wage rises would push back expectations for the timing of an interest rate rise, putting pressure on sterling.

However the figures from the Office for National Statistics showed regular pay growth excluding bonuses was unchanged at 2.8 per cent.

The pound fell a cent against the euro to just under 1.40, but was up a cent against the US dollar at just over 1.56.

World markets were dominated by reaction to developments in China. Beijing is allowing its currency to slide after a raft of weak economic data including trade figures. A weaker yuan helps its exports by making them cheaper overseas but hurts non-Chinese companies trying to sell into the world’s second biggest economy.

Burberry was one of the main losers in the previous session following the initial devaluation, with the stock down four per cent. The luxury fashion brand was down again today as the currency fell further.

The group’s business in China accounts for a large chunk of its revenues. Shares fell three per cent, or 54p, to 1482p. However,

Mulberry, another luxury brand, lifted 5.5p to 920p, after falling earlier in the session.

Randgold Resources was the main beneficiary of the turmoil in London’s top-flight, with the miner gaining on the strength of gold, seen as a safe haven investment. Shares rose more than five per cent, or 214p to 4166p. Consumer goods giant Reckitt

Benckiser was among the fallers after the UK’s Competition and Markets Authority (CMA) ruled that it would have to license sales of the K-Y lubricant brand to a rival.

Durex owner Reckitt is buying K-Y from US giant Johnson &

Johnson for a reported £260 million.

But the CMA ruled that this could result in a substantial lessening in competition resulting in higher prices, with Durex and K-Y together holding three quarters of market share in supermarkets and pharmacy chains. Reckitt shares fell almost three per cent, or 170p to 5954p.

NEW YORK

STOCKS, the US dollar, and emerging market currencies around the world remained under pressure for a second day yesterday after China’s yuan weakened again, a day after the country devalued its currency.

Major Wall Street averages pared losses by late afternoon, however, as Apple and energy shares reversed direction to trade higher.

Yesterday, the People’s Bank of China set the yuan’s midpoint rate lower than Tuesday’s closing market rate, resulting in nearly a four per cent devaluation of the yuan in two days against the U.S. dollar. Shares in China dropped one per cent overnight, and equity markets around the world dropped as well.

Sectors exposed to China’s economy fell the most, as a lower yuan makes exports to China more expensive.

Luxury goods stocks such as the French giant LVMH and Coach were lower, along with automakers like Germany’s BMW, which lost 3.7 per cent.

The yuan’s spot value fell further after Beijing released weak July output and investment data, trading as low as 6.4510 to the dollar. The US dollar weakened against most major currencies. The Dow Jones industrial average fell 0.33 points to end barely changed at 17,402.51, the S&P 500 rose 1.98 points, or 0.1 per cent, to 2,086.05 and the Nasdaq Composite added 7.59 points, 0.15 per cent, to 5,044.39.

MSCI’s broadest index of Asia-Pacific shares outside Japan hit a two-year low, falling 1.9 per cent.