China's economy woes could lead to devaluations of emerging market currencies

The South African rand plunged to a record low on Monday amid growing concerns about China’s slowing economy, which is dampening investor sentiment globally. This in turn, is prompting investors to seek safety of dollar-backed assets.

The rand weakened more than 9% to 17.99 against the dollar as fears gripped investors that China would weaken its currency aggressively and intensify its export competitiveness among emerging markets. But, the rand’s rout was controlled later as it recouped some of its losses.

The Chinese yuan lost about one-and-a-half percent since the start of 2016. While the China’s local unit weakened close to 5% last year. The sharp dip in its valuation has also triggered worries of a possible “currency war” resulting in competitive devaluations of other emerging market currencies like the Brazilian real, Russian ruble, Korean won, Thai baht, Turkish lira.



Back home, the rupee weakened 0.3% to close at 66.8125 a dollar. However, the Chinese renminbi of late, gained a bit on Monday, and offshore it surged against the dollar, spurred by what traders called aggressive intervention by Beijing, although Chinese stocks tumbled again as doubts persisted over policymakers’ intent, agencies reported.