Global stocks sink after China index dives 7%
US stocks dropped sharply Monday after a plunge in Chinese markets triggered by weak Chinese manufacturing data and escalating tensions in the Middle East. The Dow Jones industrial average sank two per cent following a rout that stretched across Asia into Europe.
The Shanghai Composite Index dived 6.9 per cent to its lowest level in nearly three months. The drop led the Shanghai and Shenzhen stock markets to halt trading for the remainder of Monday to avert steeper falls, the official Xinhua News Agency said.
It was the first time China used the 'circuit breaker' mechanism it announced late last year.
Chinese authorities have been trying for months to restore confidence in the country's stocks after a plunge in prices in June rattled global markets and prompted a panicked, multibillion-dollar government intervention. Beijing is gradually unwinding emergency controls that included a freeze on new stock offerings.
Concerns about China's economic slowdown were revived by weak manufacturing data released Monday, along with Middle East tensions, which pushed up oil prices.
The Dow Jones index sank 442 points, or 2.5 per cent, to 16,982 as of 11:05 a.m. Eastern time. The Standard & Poor's 500 index lost 51 points, or 2.5 per cent, to 1,993. The Nasdaq composite gave up 153 points, or 3 per cent, to 4,853.
"The market is trying to anticipate the global growth story," said Kevin Kelly, CIO of Recon Capital Partners. He added, "It's going to be a turbulent year. This isn't a blip."
The jitters extended to Europe. The DAX index in Germany, whose export-led economy is sensitive to the fortunes of China, tumbled 4.3 per cent. Britain's FTSE 100 fell 2.3 per cent while France's CAC 40 dropped 2.8 per cent.
Huang Cengdong, an analyst for Sinolink Securities in Shanghai, said selling accelerated as investors tried to lock in trades before trading was halted. He expects further turmoil ahead of corporate earnings reports.
"The market will not improve because there will be heavy selling in the near future," said Huang.
Elsewhere in Asia, Japan's Nikkei 225 tumbled 3.1 per cent and Hong Kong's Hang Seng retreated 2.7 per cent. South Korea's Kospi closed 2.2 per cent lower. Stocks in Australia, Taiwan and Southeast Asia were also lower.
The Caixin/Markit index of Chinese manufacturing, which is based on a survey of factory purchasing managers, fell to 48.2 points in December from 48.6 the previous month, marking contraction for the 10th straight month.
It was the latest sign of the headwinds facing China's economy that add to a downbeat outlook for Asian exporters. On Friday, an official manufacturing index also showed a persistent contraction in factory activity despite Beijing's stimulus measures.
China's factory data is "still a long way off stirring up cheer about global demand recovery," said Mizuho Bank Ltd in a daily commentary. "Asian exporters are expected to continue struggling with exports contraction and growth prospects dampened by related manufacturing gloom."
Escalating tensions in the Middle East worried investors and briefly sent the price of oil higher. Saudi Arabia said Sunday it is severing diplomatic relations with Iran, a development that could potentially threaten oil supply. The world's largest oil supplier executed a prominent Shiite cleric that prompted protesters to set fire to the Saudi Embassy in Tehran and Iran's top leader to criticize Saudi Arabia.
"Oil markets will be concerned that this could be an incremental step in a deteriorating political situation that might ultimately threaten world oil supply," Ric Spooner, chief analyst at CMC Markets, said in a commentary.