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China sparks global stocks slump
[LONDON] Fresh evidence of China's economic slowdown sent world stock markets tumbling on Monday, with Europe following Asia sharply lower in a gloomy start to 2016.
Shanghai equities plunged seven percent, leading an Asian meltdown, as more weak factory data fanned fears about the health of the world's second biggest economy.
In early morning deals in Europe, Frankfurt stocks dived 3.5 per cent, Paris shed 2.4 per cent and London lost 2.1 per cent with China-exposed mining companies falling the heaviest.
"If today's activity in Chinese equity markets is an indication of the year ahead then we are likely set for a bumpy 2016," said CMC Markets analyst Brenda Kelly.
London's top faller was mining giant Anglo American, which tanked by almost nine percent in value on demand fears in leading commodity consumer China. Peers Glencore and Antofagasta shed about seven and five percent respectively.
Global markets were also spooked over the flare-up in tensions between Iran and Saudi Arabia, as investors returned to their desks after the Christmas and year-end holidays.
World oil prices edged higher as key crude exporter Saudi Arabia cut diplomatic ties with fellow OPEC member Iran after a row over the Saudi execution of a Shiite cleric.
"On the first trading day of 2016, the markets have got off to a shocking start," added analyst Manoj Ladwa at brokerage TJM Parners.
"The problems in the Middle East have taken a turn for the worse with the Saudi-Iran stand-off. And China has only added to the negative sentiment as their economy shows further signs of slowing," he told AFP.
"Not the best start to the New Year - but if the market is able to get the current bearishness out of the way, a recovery in stocks by the end of the week is a strong possibility." Authorities in China suspended trading on its stock markets in the early afternoon after shares collapsed.
The drop in the CSI300 index - which covers the Shanghai and Shenzhen bourses - for the first time triggered an automatic early closure under a "circuit breaker" mechanism to curb volatility, after an earlier 15-minute trading halt failed to stem the declines.
The sharp losses revived memories of the summer rout that saw Shanghai crash about 40 percent and trillions of dollars wiped off valuations.
Dealers began selling immediately after data from official and private surveys of manufacturing showed activity shrinking in December. The reports are the latest to highlight weakness in the economy, which is expected to have grown in 2015 at its slowest pace in a quarter of a century.
Adding to the selling is the looming expiration of measures brought in to curb last year's share slump.
China on Monday also cut the yuan's value against the greenback, making it weaker than 6.5 for the first time in more than four-and-a-half years, as pressure on the currency mounts from the country's growth slowdown.
"Despite the use of circuit breakers to pause trading amid aggressive falls, the halt failed to stop the downward momentum of Chinese stocks, after manufacturing PMI disappointed," said Rebecca O'Keeffe, head of investment at online broker Interactive Investor.
"The extreme reaction of investors in China ... suggests that the market is highly risk averse and New Year cheer is in short supply." Markets across Asia were stung by the data, as well as news that Saudi Arabia had severed diplomatic ties with its old foe Iran on Sunday after protesters ransacked its embassy in Tehran following the execution of a Shiite cleric.
Riyadh gave Iranian diplomats two days to leave the kingdom, while the supreme leader in Tehran said Saudi Arabia would face "quick consequences" for the execution.
The developments are the latest to inflame the region and join a list of negative news that hurt world markets over the past year, including China's economic malaise, plunging oil prices and anaemic global growth.
Investors meanwhile fled to safe investments such as the US dollar and yen, sending stocks and emerging-market currencies falling.