Panic selling gripped US and European stock markets on Monday after Chinese shares sank deeper, posting their largest intra-day fall since 2007 on worries that the Asian powerhouse was in for a hard landing.
US stocks tumbled in opening trade on Monday, with the Dow plummeting more than 1,000 points or 6 percent within minutes after trading started. The massive fall built on the huge sell-off of stocks that had taken hold across Asia and later Europe.
European stock markets slumped drastically on the same day, with London’s benchmark FTSE 100 index of top blue-chip companies diving more than 4.5 percent, while Frankfurt’s DAX 30 sank over 6 percent, and so did the CAC 40 index in Paris.
The sell-off in Europe came after Chinese shares saw all of their gains this year wiped out following a massive rout on the Shanghai Stock Exchange. On Monday, the Shanghai Composite index closed 8.49 percent down at 3,209 points.
Panic selling ripped virtually across the whole of Asia, with shares in Hong Kong closing 4.77 percent lower and in Tokyo 4.61 percent down, while Seoul dropped 2.47 percent and Sydney lost 4.09 percent.
Asia’s ‘Black Monday’
Evan Lucas, an analyst with IG markets, described Monday as “one of the worst trading days of the past five years.”
“The reaction from Asia today will be symptomatic of the current investor sentiment and belief that a hard landing (of China’s economy) is inevitable,” he told the news agency Reuters.
Global equities have lost more than $5 trillion (4.3 trillion euros) in value since China’s shock currency devaluation on Aug. 11 sparked fears its economy is slowing more than thought.
Data on Friday showing Chinese manufacturing activity plumbing a 77-month low added to the gloom, signaling that even a campaign by Beijing to stimulate growth by cutting interest rates and boosting lending is not working.
China worries mounting
As a result, Chinese stocks’ year-long rally that saw shares soar 150 percent came to a sudden end in June. Chinese authorities have since launched unprecedented measures to support shares.
On Sunday state media said the huge national pension fund would now be allowed to buy equities in a fresh bid to prop up the market. The fund, which had some 3.5 trillion yuan ($550 billion) in net assets at the end of 2014, will be able to invest up to 30 percent of that in equities.
Apparently though, investors fear even Beijing’s huge firepower will not be enough to stop the rout in Chinese shares, particularly after Shanghai shares fell through the key 3,500 point mark.
“This is a real disaster and it seems nothing can stop it,” Chen Gang, a Shanghai-based chief investment officer at Heqitongyi Asset Management, told Bloomberg News.
Drag on oil and currencies
Fears of weaker growth in the world’s second largest economy has further dragged down oil prices, which on Friday broke below $40 a barrel for the first time in six years. The slump was compounded by a worsening glut after data last week had shown the number of US drilling rigs rising, despite the slump in prices.
US benchmark West Texas Intermediate (WTI) for October delivery fell $1.28 to $39.58 while Brent crude for October eased $1.45 to $44.65.
Jitters Monday over China and the global economy also led to a drop in the value of the US dollar, sparking a move into the Japanese yen. The greenback fell to 121.23 yen in Asia, down from 122.06 yen in New York on Friday. The euro was at $1.1425 and 138.51 yen, from $1.1386 and 138.97 yen.
The crisis in China is also affecting more and more emerging economies in Asia. With the Asian economic powerhouse faltering, countries like Malaysia, Thailand and South Korea – who dragged their currencies down to fresh multi-year lows on Monday – are bound to suffer.
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uhe, hg /cjc (Reuters, dpa, AFP)
