24 October 2016
Traders on the New York Stock Exchange try to cope with the fallout from market turmoil in China Thursday. Photo: Reuters
Traders on the New York Stock Exchange try to cope with the fallout from market turmoil in China Thursday. Photo: Reuters

Global markets in turmoil with China at epicenter

The Standard & Poor’s 500 Index capped its worst-ever four-day start to a year in records dating back to 1928 as turmoil in China’s stock markets spread around the world.

The US equities benchmark ended the first four days of 2016 lower by 4.9 percent, while the Dow Jones Industrial Average has erased more than 900 points so far this year, Bloomberg reported.

The MSCI All-Country World Index wrapped up a four-day slide of 5.2 percent, its worst start in records dating back to 1998.

Selling in global equities began in China after the central bank devalued the renminbi by about 0.5 percent.

Crude oil settled at a 12-year low, and copper dipped below US$2 for the first time since 2009. The yen reached a four-month high.

“China devaluing its currency sparks concern that the global growth engine is starting to slow and that creates a dump of any high-flying stocks or anything people perceive as risk,” Yousef Abbasi, a market strategist at JonesTrading Institutional Services in New York, was quoted as saying.

Fresh concern that the slowdown in China’s economic growth will hamper global growth has wiped US$2.5 trillion off the value of global equities this year, as the country’s tolerance for a weaker currency is viewed as evidence policymakers are struggling to revive an economy that’s the world’s biggest user of resources.

Concern briefly eased after the China Securities Regulatory Commission announced the suspension of a new stock circuit breaker that forced Chinese exchanges to shut for the second day this week.

But the move later gave way to anxiety that policymakers are struggling with how to contain the months-long turmoil in its financial markets.

“They don’t have a whole lot of experience controlling and monitoring markets and they’ve been going about it ham-handedly making the situation far worse than it needs to be,” Krishna Memani, chief investment officer at Oppenheimer Funds Inc. in New York, told Bloomberg.

The Stoxx Europe 600 Index slid 2.2 percent. The MSCI Asia Pacific Index fell 2.1 percent. Benchmark stock indexes in Australia, Japan, Singapore and Thailand each lost more than 2 percent.

The Hang Seng China Enterprises gauge of mainland shares listed in Hong Kong tumbled 4.2 percent, its lowest close since October 2011.

The Shanghai Composite Index tumbled 7.3 percent before trading was suspended.

New circuit breakers, which kicked in on Monday, have been criticized by analysts for exacerbating declines as investors scramble to exit positions before getting locked in by the halts.

After the halt Thursday, the securities regulator announced rules to limit selling by major shareholders when a ban on sales by them expires this week.

Later, the regulator suspended the circuit breakers, signaling that the country’s leadership may reconsider or change the system.

The US dollar slumped, snapping its longest streak of gains since September, as the upheaval in China weighed on the outlook for higher rates in the U.S. 

The yen, which has been the best-performing major currency so far this year amid the demand for safe-haven assets, strengthened 0.6 percent to 117.77 per US dollar, after touching 117.33, the strongest since Aug. 24.

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