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Global Stocks Tumble Further Amid Doubts About China Global Stocks Tumble Further Amid Doubts About China
(35 minutes later)
HONG KONG — Global markets continued to plunge on Monday, with stocks across Asia and Europe sliding sharply, led by a rout in China. PARIS — Global stocks on Monday picked up where they left off last week, with markets falling sharply in Europe and Asia, led by another horrible session in China.
The main Shanghai share index plummeted 8.5 percent, erasing its gains so far this year. The selling in China has accelerated despite extraordinary government intervention in the past two months aimed at propping up share prices. As the slide highlighted on Monday, those efforts have not been a success. The latest sell-off began after Chinese markets opened sharply weaker. The benchmark Shanghai composite index closed 8.5 percent lower, erasing all of the gains it had made in an extraordinary run-up this year.
“I knew it would fall today but I didn’t expect it would fall this much,” said Hu He, a 39-year-old part-time investor in Beijing. The selling in China has accelerated despite extraordinary government intervention in the past two months aimed at propping up share prices. As the slide on Monday highlighted, those efforts have not been a success and the damage has been felt far beyond the Chinese market.
“I don’t see any measures that would work,” Mr. Hu added. Stocks fell sharply at the open in Europe, with the Euro Stoxx 50, a barometer of eurozone blue chips, dropping 2.2 percent in early trading, while the FTSE 100 in London fell 2.05 percent and the DAX in Germany fell 2.29 percent.
Investors’ concerns over China’s economic slowdown and a souring view of once-favored emerging economies have rattled financial markets around the world in recent days, and showed no signs of letting up on Monday. Trading in Standard & Poor’s 500 futures indicated that Wall Street was headed for a downturn at its opening bell. The S.&P. 500 fell 3.2 percent on Friday.
The gloom was shared across the region. In Japan, the Nikkei 225 stock average closed 4.6 percent lower, while Australia’s main index fell 4.1 percent. Investors’ concerns over China’s economic slowdown and a souring view of emerging economies have rattled financial markets around the world in recent days, and showed no signs of letting up.
The sell-off extended to Europe, where the FTSE 100 index in London was down 2.3 percent in early trading, while the DAX in Germany fell 2.7 percent. Trading in index futures suggested a sharply lower opening on Monday for stocks in the United States. The gloom was shared across Asia. In Japan, the Nikkei 225 stock average closed 4.6 percent lower, while Australia’s main index fell 4.1 percent.
In Hong Kong, where the Hang Seng Index was down 4.8 percent by late afternoon, the mood at local brokerages was grim. In Hong Kong, where the Hang Seng Index closed 5.2 percent lower, the mood at brokerages was grim.
“People who had wanted to bottom feed by buying earlier this morning are all losing money,” said Andy Wong, a Hong Kong stockbroker. “The market trend does not look good, it is all bad news, globally. All the markets are going down, globally; The Chinese stock markets are in free fall today.”“People who had wanted to bottom feed by buying earlier this morning are all losing money,” said Andy Wong, a Hong Kong stockbroker. “The market trend does not look good, it is all bad news, globally. All the markets are going down, globally; The Chinese stock markets are in free fall today.”
Leung Chung, a 62-year-old retiree and day trader in a T-shirt and with a toothpick in his mouth, looking sourly at the monitors at his local brokerage in late morning. “I just purchased some stocks earlier this morning, but have already lost money,” Mr. Leung said. “I am not too concerned as I only bought stocks with solid financial strength.” Leung Chung, a 62-year-old retiree and day trader in a T-shirt and with a toothpick in his mouth, looked sourly at the monitors at his local brokerage in late morning. “I just purchased some stocks earlier this morning, but have already lost money,” Mr. Leung said. “I am not too concerned as I only bought stocks with solid financial strength.”
Most Asian currencies fell against the dollar, including the Malaysian ringgit, which slipped 1.5 percent in late trading. The yen, considered a regional haven currency, rose against the dollar for the fourth session in a row. Prices for commodities such as oil and copper continued their retreat. A Bloomberg index of total returns on commodities fell to its lowest level since 2002.Most Asian currencies fell against the dollar, including the Malaysian ringgit, which slipped 1.5 percent in late trading. The yen, considered a regional haven currency, rose against the dollar for the fourth session in a row. Prices for commodities such as oil and copper continued their retreat. A Bloomberg index of total returns on commodities fell to its lowest level since 2002.
Investors in Asia were reacting to the steep sell-off on Wall Street on Friday, when the Dow Jones industrial average tumbled 3.1 percent, threatening to end a breathtaking six-year rally in United States stocks.Investors in Asia were reacting to the steep sell-off on Wall Street on Friday, when the Dow Jones industrial average tumbled 3.1 percent, threatening to end a breathtaking six-year rally in United States stocks.
The rout has deepened globally as uncertainties have increased over the health of China’s economy, previously a major engine of global growth. The surprise devaluation on Aug. 11 of China’s currency, the renminbi, was the biggest drop since the country’s modern exchange rate system was established in 1994.The rout has deepened globally as uncertainties have increased over the health of China’s economy, previously a major engine of global growth. The surprise devaluation on Aug. 11 of China’s currency, the renminbi, was the biggest drop since the country’s modern exchange rate system was established in 1994.
The move raised concerns that China’s slowdown could be worse than previously appeared, a development that would have far-reaching effects, given China’s increasing economic importance to Asia and the rest of the world. The move raised concerns that China’s slowdown could be worse than had previously appeared, a development that would have far-reaching effects, given China’s increasing economic importance to Asia and the rest of the world.
“Asian financial markets are seeing an intensification of selling pressure in the aftermath” of China’s devaluation, Claudio Piron, a strategist in Singapore for Bank of America Merrill Lynch, wrote Monday in a research report. “The market’s confidence in China’s ability to deliver growth remains in question.”“Asian financial markets are seeing an intensification of selling pressure in the aftermath” of China’s devaluation, Claudio Piron, a strategist in Singapore for Bank of America Merrill Lynch, wrote Monday in a research report. “The market’s confidence in China’s ability to deliver growth remains in question.”
One big question is whether China’s stock market plunge will make the Chinese economy, the world’s second largest, after that of the United States, even weaker. China’s exports were down 8 percent in July from a year earlier while auto sales were down 7 percent.One big question is whether China’s stock market plunge will make the Chinese economy, the world’s second largest, after that of the United States, even weaker. China’s exports were down 8 percent in July from a year earlier while auto sales were down 7 percent.
But Xu Sitao, the chief China economist in the Beijing office of Deloitte, said in a speech in Hong Kong that the effect on the economy could be muted because equities represent only 7 percent of the overall wealth of urban Chinese households, who continue to rely very heavily on real estate in their holdings.But Xu Sitao, the chief China economist in the Beijing office of Deloitte, said in a speech in Hong Kong that the effect on the economy could be muted because equities represent only 7 percent of the overall wealth of urban Chinese households, who continue to rely very heavily on real estate in their holdings.
“The stock market really has a very, very insignificant impact on the Chinese economy,” he said.“The stock market really has a very, very insignificant impact on the Chinese economy,” he said.
Instead, China’s slowdown is being driven by more traditional industry. On Friday, new data showed China’s manufacturing sector contracted in the first three weeks of August at the fastest pace since the depths of the financial crisis.Instead, China’s slowdown is being driven by more traditional industry. On Friday, new data showed China’s manufacturing sector contracted in the first three weeks of August at the fastest pace since the depths of the financial crisis.
It was the latest sign of continued deterioration in industrial activity across China, suggesting that the government’s efforts to support growth — which include several interest rate cuts and directing billions of dollars in new loans to infrastructure projects — have fallen short.It was the latest sign of continued deterioration in industrial activity across China, suggesting that the government’s efforts to support growth — which include several interest rate cuts and directing billions of dollars in new loans to infrastructure projects — have fallen short.
At the same time, state intervention in the stock markets appears to have backfired. China’s stock markets had enjoyed a tremendous rally, more than doubling in the year to mid-June. But they have plunged since then, despite the government ordering state agencies to buy shares and barring large shareholders from selling down their stakes.At the same time, state intervention in the stock markets appears to have backfired. China’s stock markets had enjoyed a tremendous rally, more than doubling in the year to mid-June. But they have plunged since then, despite the government ordering state agencies to buy shares and barring large shareholders from selling down their stakes.
Despite this, the market continued to slump. On Monday, the Shanghai index fell to its lowest level so far this year; it traded as low as 3,191.88 points, a drop of 9 percent from the close on Friday and nearly 40 percent below its peak in June. Manland shares are only allowed to rise or fall by 10 percent per day before they are halted from trading. Shares in more than 800 of the nearly 1,100 companies in the Shanghai index fell by the limit. Despite this, the market continued to slump. On Monday, the Shanghai index fell to its lowest level so far this year; it traded as low as 3,191.88 points, a drop of 9 percent from the close on Friday and nearly 40 percent below its peak in June. Mainland shares are only allowed to rise or fall by 10 percent per day before they are halted from trading. Shares in more than 800 of the nearly 1,100 companies in the Shanghai index fell by the limit.
The plunge on Monday in Shanghai came despite an announcement by China’s government on Sunday that the country’s pension funds had been approved for the first time to invest in stocks. The plunge in Shanghai came despite an announcement by China’s government on Sunday that the country’s pension funds had been approved for the first time to invest in stocks.
Pension funds can now invest as much as 30 percent of their holdings in the stock market, according to the statement by the State Council, China’s cabinet. The main state-run pension fund manages about 3.5 trilllion renminbi, or about $550 billion, in retirement savings of ordinary citizens. Pension funds can now invest as much as 30 percent of their holdings in the stock market, according to the statement by the State Council, China’s cabinet. The main state-run pension fund manages about 3.5 trillion renminbi, or about $550 billion, in retirement savings of ordinary citizens.
Many economists now expect the central bank, the People’s Bank of China, to cut the ratio of deposits that banks are required to keep on reserve in a bid to help stem outflows of capital, which rose to a record of $70 billion in July and probably accelerated in the weeks since the renminbi was devalued.Many economists now expect the central bank, the People’s Bank of China, to cut the ratio of deposits that banks are required to keep on reserve in a bid to help stem outflows of capital, which rose to a record of $70 billion in July and probably accelerated in the weeks since the renminbi was devalued.
Reducing this so-called reserve requirement ratio, or R.R.R., would help bring down rates in China’s money markets, which have been climbing in recent months, despite the central banks recent attempts to add more liquidity.Reducing this so-called reserve requirement ratio, or R.R.R., would help bring down rates in China’s money markets, which have been climbing in recent months, despite the central banks recent attempts to add more liquidity.
“Economic activities remain weak and the likelihood of an imminent R.R.R. cut has increased,” Li-Gang Liu, the chief economist for China at the Australia and New Zealand Banking Group, wrote Monday in a research report. “In the near future, we expect the People’s Bank of China to continue managing market liquidity conditions.”“Economic activities remain weak and the likelihood of an imminent R.R.R. cut has increased,” Li-Gang Liu, the chief economist for China at the Australia and New Zealand Banking Group, wrote Monday in a research report. “In the near future, we expect the People’s Bank of China to continue managing market liquidity conditions.”