The Dow Jones industrial average – which fell into the correction zone on Friday – briefly slumped more than 1,000 points, its biggest point-drop ever.
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But the turnover in the Hong Kong bourse totaled 138.97 billion HK dollars (USD 17.93 bn), up from 118.28 billion HK dollars the previous trading day, Xinhua news agency reported. China’s benchmark Shanghai Composite index has fallen by almost 40 percent since June, after soaring more than 140 percent a year ago.
China’s recent currency devaluation, the biggest for over a two decades, gave investors reason to the believe the Chinese government is no telling the full story about the health of the country’s economy.
“GDP growth in the US and euro zone economies just isn’t strong enough to prevent a global disinflationary shock from accumulating”, Thomas Thygesen, SEB’s head of cross-asset strategy, said by phone from Copenhagen. Its enormous appetite for raw materials like oil, copper and iron ore fueled global growth, especially in emerging markets like Brazil that are rich in natural resources.
That’s left investors unsure of how to gauge which companies might be a good bet to weather a slowdown in China.
The Shanghai Composite Index fell 8.5 percent to close at 3,209.91 points, its biggest one-day loss since an 8.8 percent decline on February 27, 2007.
The Dow futures held about 700 points lower, with the S&P futures off about 80 points, and the Nasdaq 100 futures off about 5 per cent, which marks the lower end of the price limit.
The losses went beyond stocks and commodities.
The S&P 500 has skyrocketed 220% since bottoming out at 666 during the Great Recession in March 2009. The yield on the 10-year Treasury bond fell below 2 percent for the first time since April, to 1.96 percent. China’s dimming outlook is provoking calls for more economic stimulus from Beijing, though earlier government efforts to staunch the hemorrhage appear to have done little to stabilize markets.
The future of the stock market still depends on the fundamentals. “Therefore, there will be less of a risk of a financial collapse down the road”, El-Erian told CNN.
Oil prices also tumbled, accelerating losses after breaking below the $40 barrel for the first time in six years Friday on concerns about waning demand in China, the world’s top energy importer. Since then, weak economic data have fueled worries that a drop-off in Chinese growth could cause a global slowdown… Yes, American drivers love cheap gas at the pump, but investors get nervous when oil prices fall too low.
The price-to-equity ratio of the ChiNext Index has been lowered but still stands at 76, similar to the level in November 2010, the highest point before this round of bull market.
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Ed Yardeni, president of Yardeni Research, believes the selloff has created an opportunity for investors “with the stomach to jump in”. That hurts U.S. companies and many countries that depend heavily on profits from selling oil. We don’t actually think that’s the case though.
