The market selloff sent Russia’s rouble to all time low amid chaotic trading, which has seen over $5 trillion wiped off global stocks in two weeks. £44bn was wiped off the FTSE in two hours, Germany’s DAX fell below 10,000 point for the first time this year, while the FTSE 100 in London fell 2.22 percent in early trading to 5,995 points. The French CAC index was down 2.7 percent. The overall decline took the broad European market down to its lowest level since mid-January. Bank and energy stocks were among the worst hit, but the falling price of commodities such as oil and gas has also weighed on markets.
Stocks tumbled across Asia on Monday. China’s benchmark Shanghai Composite Index closed 8.5 percent lower, erasing all the gains it had made in an extraordinary run-up this year, while the tech-focused Shenzhen Composite also slid 7.5 percent. Honk Kong’s Hang Seng Index dropped by almost 5 percent to 21,313.28, while Japan’s Nikkei 225 Stock Index fell 4.6 percent at 18,540.68 points. The South Korea’s Kospi lost 3.0 percent to 1,819.23. Taipei shares plunged nearly 7.5 percent, their worst ever one-day drop.
The Australian market suffered the biggest one-day fall since September 2011, seeing $60bn wiped off its overall value. The rout came just a day after Beijing announced it would allow main state pension funds to invest in the stock market effective immediately, the move which was widely criticized as a damage-control measure to divert billions of dollars into the market to shore up prices. Some traders said the authorities’ failure to step in to buy shares generated a sense of panic and forced some funds to liquidate positions.
“The pension fund signal didn’t work, which proves that investors have entirely lost confidence in the market,” said Wu Xianfeng, president of Longteng Asset Management in Shenzhen. “The market has been in a panic since last week.”
Trading in Standard & Poor’s 500 futures indicated that Wall Street was headed for a downturn after last week’s 6 percent decline. In the oil market, futures contracts for West Texas crude slid 3.5 percent to $39.04 a barrel in electronic trading on the New York Mercantile Exchange, while contracts for the European benchmark Brent crude fell 3.7 percent to $43.80. It was just June of 2014 when oil was at $100 a barrel. The energy sector of the Standard & Poor’s 500 has lost nearly one-third of its value over the past year alone, and the latest slide only hints at a warning sign about the global economy.
The selloff in China accelerated despite extraordinary government intervention in the past two months to prop up shares. China’s Communist party leaders, in an unprecedented move have injected trillions of dollars into the stock market in order to set up a market stabilization fund. But yet another day of stock market chaos highlighted that those efforts have not been a success and the damage has been felt far beyond the Chinese territories.
Augustine Eden of Accendo Markets said the lack of reactionary government intervention in the Chinese market has “sent the relatively unsophisticated retail investors that make up the majority of the market packing”. He said,” This has created a perceived dearth of demand for commodities as outside investors use stock market volatility to construct a bearish view of China’s economy.”
The euro has been a beneficiary of emerging market currency woes and fears about the likelihood of a possible Federal Reserve rate hike. The single currency rallied to a six month high against the US dollar, hitting $1.1499, its highest level since February. However, the dollar index fell 0.7 percent to its lowest in two months against other major currencies, while the Australian dollar fell to six-year lows.
Both the euro and the yen are the beneficiaries of “risk aversion caused by China’s surprise move this month on the yuan and from falling expectations that the Fed will hike interest rates,” said Mansoor Mohi-uddin, senior markets strategies at RBS.
It has been a rough few months for China after seeing all the stock market highs. From the recent turn of events it is evident that China is losing both economically and socially. The weakening economy, currency correction and now the recent rout. Even off the economy, the recent Tianjin blasts shows that nothing is going China’s way at the moment.
Fears about a deteriorating Chinese economy, and in turn global growth, engulfed markets after a run on weak economic data from China in recent weeks, which ultimately has fed into a wider selloff in emerging markets. It’s clear from the global picture that China is in the middle of an economic scarce, which at every point appears to be in a freefall. And this only means one thing: more inhabitants fleeing poverty and crashing into developed nations. But the question is what the Chinese government is going to do next to put the brakes on the slowdown and to shore up confidence in the economy.