China is once again causing shockwaves throughout global financial markets, this time due to its second currency devaluation in just two days.
Although yesterday's devaluation was described by the central bank's chief economist, Ma Jun, as a "one-off" move, the currency's reference rate was dropped again this morning with the yuan on track to record its biggest two-day drop in more than two decades. Indeed, the action is having a dramatic effect on currencies that are more exposed to China, including Australia's own, which plummeted to a fresh six-year low of just US72.25 cents.
Of course, while the depreciation of China's currency is, in large part, designed to boost the nation's struggling export sector, the major concern is that it will also have a negative impact on imports. That would explain the S&P/ASX 200's (Index: ^AXJO) (ASX: XJO) 1% decline today, while it would also give reason as to why the nation's biggest miners are leading the downward charge.
Indeed, mining behemoths BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) are trading 4% and 5.6% lower respectively, while Fortescue Metals Group Limited (ASX: FMG) is down 7.5%. As all three rely heavily on sales to China, a weaker yuan is not good news.
However, China isn't the only factor weighing on the market today. A number of big-name companies, including CSL Limited (ASX: CSL), Carsales.Com Ltd (ASX: CAR) and Computershare Limited (ASX: CPU) have reported their full-year earnings results, which left the market somewhat underwhelmed. The trio fell 1.9%, 4.8% and 9.2%, respectively.
Commonwealth Bank of Australia (ASX: CBA) also reported its earnings this morning, and the market isn't likely to respond too kindly when the stock eventually emerges from a trading halt. The trading halt is pending the completion of the institutional component of its $5 billion capital raising, which is necessary to meet the higher restrictions recently set in place by the Australian Prudential Regulation Authority.
Despite the bank's record-breaking $9.14 billion profit, The Australian Financial Review declared that the "golden banking era" has come to an end. Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC) paid the price, falling 0.7%, 0.9% and 0.2% for the day, respectively.
Although now could be a great opportunity to begin buying some high-quality stocks on the cheap, investors also need to ensure they're prepared for further volatility in the near future.
