China stocks drop, Yuan falls after Moody's cuts credit rating

(May 24): China’s stocks headed for their lowest level since October, the yuan retreated and default risk increased after Moody’s Investors Service cut its rating on the nation’s debt for the first in almost three decades.

The Shanghai Composite Index fell as much as 1.3% before paring declines to 0.4% at the midday break. The yuan dropped 0.1% against the dollar, and the cost of insuring five-year sovereign debt from nonpayment rose 3 basis points.

The Moody’s downgrade to A1 from Aa3 comes as local investors desert the equity and bond markets amid a government campaign to cut risk in the financial sector. The Shanghai gauge is the world’s worst-performing major benchmark index this quarter, sliding more than 5%. The yield on China’s 10-year government debt is at 3.68%, close to a two-year high.

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