China’s stock market starts week with 5.3% drop

China Stock Market

The Shanghai Composite closed down 5.3%, and the Shenzhen Composite ended 6.6% lower to start the week.

Turmoil in China’s markets have rattled worldwide markets. Last week the Dow lost 1,079 points, or more than 6%, over the week — the index’s worst five-day start to a year on record.

Chaos in China last week was largely blamed on the so-called “circuit breaker” mechanism which paused markets after a 5% decline and then closed trading for the day after a 7% decline. Regulators ditched the new measure after only a few days because of concerns it was fueling trading losses rather than reining them in.

Analysts believe the rocky start to the new year will continue in China. Shares have been hurt by a large devaluation in the country’s currency, the yuan.

The Central Bank in recent weeks has attempted to guide the yuan lower against the US dollar, an attempt to aid Chinese exports. The bank’s attempt to steer the Yuan has alarmed some investors who have in turn sold the currently at an aggressive rate.

Softer demand in China led to a 1.4% increase in consumer prices in 2015, the country’s slowest pace in six years and well below the government’s 3% target, state news agency Xinhua reported.

Currency strategists at HSBC said in a research note Sunday that they expected yuan volatility to to “remain high while depreciation pressures are likely to remain strong.”