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Nikkei Markets

Asian equities slump as yuan's tumble below 7 to dollar spooks investors

Chinese airlines, property developers drag down A300 index

HONG KONG (Nikkei Markets) -- Asian shares outside of Japan plunged Monday as the Chinese yuan's fall below 7 to the dollar amid mounting trade worries soured appetite for regional equities.

The Nikkei Asia300 Index declined 2.9% to close at 1,227.39.

Demand for risk assets was marred by the Chinese currency's 1.4% fall to 7.0390 to the dollar, its worst session since August 2015. The currency's decline below the psychologically important level of 7 to the dollar came amid the People's Bank of China's daily yuan fixing of 6.9225, which was the weakest since early-December.

The yuan fell as U.S.-China trade tensions escalated. President Donald Trump last week said that effective from next month, the U.S. will impose a 10% tariff on more Chinese goods and warned that the levies could go higher. Trump cited China's failure to buy U.S. agricultural goods, agreed upon earlier, as among the reasons for the latest round of tariffs. In the wake of the fresh tariffs, China had asked state purchasers to halt imports of American agricultural products, Bloomberg reported.

Chris Weston, the head of research at Australia-based Pepperstone Group, said fears of the yuan's depreciation and currency wars had ramped up again. That will compound issues across broad financial markets, with traders worrying about a capital flight from China and subsequent tightening of financial conditions in the Chinese economy, he added.

The S&P 500 Futures index was trading 1.3% lower on Monday, indicating that Wall Street will likely extend last week's losses. Safe-haven demand lifted Treasuries and the yen.

Other Asian currencies followed the yuan lower. The South Korean won declined below 1,200 to the dollar, hitting its lowest in three years.

Chinese airlines were among the biggest losers on the A300 gauge amid the yuan's decline. On account of the high dollar debt exposure, the sector is among the most vulnerable to the fall in the Chinese currency. Air China fell 6%, China Eastern Airlines declined 6.5%, and China Southern Airlines ended 6.1% lower.

Chinese property developers and banks were the other major losers. China Vanke dropped 3.7% despite reporting an 11% year-on-year increase in sales in July. China Overseas Land & Investment lost 3.9%. Bank of China and China Construction Bank dropped at least 2.5% each.

Chinese social media major Tencent Holdings fell 4.3% and another index heavyweight Samsung Electronics slipped 2.2%.

Tata Steel tumbled 2.4%, Posco dropped 3.2%, aluminum maker Hindalco Industries shed 2.5% amid worries over the outlook for industrial commodity producers.

ITC declined 1.9% amid broad market losses. The Indian consumer company late Friday reported a 12.5% increase in net profit for the June quarter.

Hong Kong equities were the worst performing in Asia on Monday, further pressured by continuing demonstrations. Protesters called for a strike on Monday, causing disruptions to public transport. Hundreds of flights to and from the city were reportedly canceled, with air traffic controllers calling in sick en masse, according to the South China Morning Post.

Hang Seng Bank, a unit of HSBC, fell 3.6% despite reporting an 8% increase in first-half net profit. HSBC Holdings slipped 1.9% after unexpectedly saying Chief Executive Officer John Flint would be stepping down. The London-headquartered bank reported an 18.6% increase in first-half net profit and announced plans to buy back up to $1 billion in shares.

--Nimesh Vora

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