Global markets selloff deepens on China worries

[NEW YORK] World stock markets endured another bruising day Monday as a huge decline in Chinese equities sparked selling throughout Asia, Europe and the Americas, deepening a global stock slump.

The Shanghai index tumbled 8.49 per cent, its worst decline in more than eight years, as a worsening stock downturn adds to mounting doubts about the world's second biggest economy.

Losses in other major markets topped 4 per cent: In Asia, Tokyo lost 4.61 per cent and Hong Kong 5.17 per cent, while in Europe, London's benchmark FTSE 100 index sank 4.67 per cent, the CAC 40 in Paris plunged 5.35 per cent and Frankfurt's DAX 30 index fell 4.70 per cent.

That spilled over onto Wall Street, where the opening minutes were especially turbulent, with the Dow Jones Industrial Average plunging more than 1,000 points, or six percent, before cutting those losses.

A short-lived rebound toward break-even territory came at midday after Tim Cook, the chief executive of Apple, wrote an open letter to CNBC saying the world's most valuable company was still confident in the key Chinese market.

But sellers returned and the Dow finished down 3.58 per cent, while the S&P 500 lost 3.94 per cent and the tech-rich Nasdaq Composite Index shed 3.82 per cent.

"Market crashes of this kind are usually followed by a period of violent ups and downs, and we expect volatile trading in coming weeks," said Ian Shepherdson of Pantheon Macroeconomics.

"Following an extended bull market in risk assets, the key question investors will be asking is whether the economic cycle is turning." Few markets were spared. Bombay, which had fended off selling pressure last week, succumbed and lost nearly 6 per cent Monday. Greek shares gave up 10 per cent, adding to domestic political uncertainty ahead of likely elections next month.

Latin American bourses also dropped, with Sao Paulo, the region's largest stock exchange, ending off 3.03 per cent after plunging 6.49 per cent in opening trade.

The volatility was not limited to equities. US oil prices closed below US$40 a barrel for the first time since February 2009, while key industrial metals such as copper also tumbled to six-year lows.

The dollar also suffered deep declines against the euro, yen and other major currencies, on growing expectation that the Federal Reserve will delay a plan to hike interest rates.

"Dollars of all shapes and sizes endured big drubbings today as worries about China spread like wildfire across global markets," said Joe Manimbo, senior market analyst at Western Union Business Solutions.

Some analysts suggested markets could soon stabilise, especially in the US, where economists still see solid jobs growth and higher sales of autos as signs of an improving economy.

Developed markets "still look attractive," said an investment note from Wells Fargo that predicted the S&P 500 would hit a new record in 2016.

But many see more jagged times ahead until China settles down.

"The only thing that's guaranteed for the next few days is volatility, whether it's to the upside or downside," said Michael James, managing director of equity trading at Wedbush Securities.

"There is no doubt that the panic begets panic in this market," Michael Holland, chairman at Holland & Co, told Bloomberg Television.

"It's a psychological thing. It's pervasive. It's everywhere."

AFP