Australian shares endured their worst week since September 2011, and their worst start to a year on record, as China's continuing currency devalutions led global investors to fear for the state of the world's second-biggest economy.
The S&P/ASX 200 index fell 5.7 per cent over the week, losing about $85 billion in market capitalisation. The benchmark index closed down 0.4 per cent on Friday at 4990.8 while the broader All Ordinaries fell 0.4 per cent for the day and 5.5 per cent for the week to 5049.4.
Friday's decline came despite some rare good news for global investors as the People's Bank of China set the yuan fixing at about Thursday's level, deciding not to continue the devaluation that had been rocking markets.
The PBoC set the reference rate at 6.5636 per US dollar prior to market open, firmer than the previous fix of 6.5646, and firmer than the previous day's closing quote 6.5929, after an eight-day stretch of weaker fixings that roiled global markets.
Also helping sentiment was the decision by Chinese authorities to suspend a controversial "circuit breaker" rule that had led to a suspension of trade on all the country's sharemarkets twice during the week.
China's efforts to restore calm to its turbulent markets had some success as the yuan stabilised and regional sharemarkets are mostly higher for the first time in five days – with the ASX a notable exception. China's market was up about 3 per cent in late trade.
Fall seems 'exaggerated'
AMP Capital chief economist Shane Oliver said the fall in China's market "looks to have been exaggerated" and was driven more by fears and regulatory issues around the sharemarket and currency rather than a renewed deterioration in economic indicators.
Dr Oliver said the main drivers were worries about new share supply following the scheduled end to a ban on selling by major shareholders and a new sharemarket circuit breaker that commenced on Monday.
The sharemarket circuit breaker "appears to have added to market volatility rather than calmed it down," he said.
"The 7 per cent threshold for a market fall to trigger a shutdown was too tight and encouraged investors to bring forward selling in an effort to beat the shutdown and a continuing depreciation of the currency."
But he noted that China had made efforts to rectify the problems.
"Chinese regulators have since announced a restrictive limit on the size of stakes that major investors can sell and the circuit breaker has now been suspended after the experience of the last week," Dr Oliver said.
He said the currency depreciation could well be over for the time being, although the drop in Chinese shares "may have a bit further to go".
'Likely to step up efforts'
"After a 6 per cent plus depreciation in the value of the currency since July the PBoC is now likely to step up efforts to try and stabilise it again much as it did through September and October."
All sectors of the Australian sharemarket were in the red, with mining and bank stocks leading the market down.
Market heavyweight BHP plunged 8.4 per cent for the week to $16.35 and Rio Tinto crumbled 6.3 per cent to $41.90. Fellow blue-chip Telstra outperformed the market, losing 5.5 per cent to $5.30.
The banks had a horror week: Westpac lost 7.6 per cent to $31; National Australia Bank, 8.2 per cent to $27.72; Commonwealth Bank, 7.1 per cent to $79.42; and ANZ, 8.5 per cent to $25.54.
Fewer than 10 stocks from the ASX 200 finished even or in positive territory for the week. JB Hi-Fi, which stands to gain from the turmoil surrounding competitor Dick Smith, gained 3.5 per cent to $20.20.
The week's poorest performer was Slater & Gordon, after it emerged that the company's lenders have appointed investigative accountants to take a closer look at its books.
The move follows a shock abandonment of its earnings guidance in late 2015, which unnerved shareholders and prompted a potential class action.