The trading year kicked off with a decline in Chinese equities and a fall in Chinese Yuan (CNY). The news that China had allowed its currency to fall further since the depreciation last Aug triggered further declines in global equities. Aggravating the worries was news that China’s foreign exchange (FX) reserves had declined by a record USD108 billion in Dec alone and by USD513 billion in 2015. Having experienced the Asian Financial Crisis (AFC) in 1997/98 where regional currencies depreciated significantly and set off a recession and a deep bear market in equities, I started to worry whether there would be a repeat of AFC.

The news flow is worrying enough. As mentioned earlier, China’s FX reserves had declined by a record USD513 billion in 2015 to USD3.33 trillion, which represented a decline of 13.3%. Yet, CNY had not depreciated against USD by much. A year ago, the …