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Osborne plays down fears China stock market slide will derail EU economies Osborne plays down fears China stock market slide will derail EU economies
(about 1 hour later)
George Osborne has played down fears that European economies will be derailed by the dramatic stock market slide in China that triggered some of biggest swings at bourses around the world since the 2008 financial crisis.George Osborne has played down fears that European economies will be derailed by the dramatic stock market slide in China that triggered some of biggest swings at bourses around the world since the 2008 financial crisis.
The UK chancellor said the volatility in China, where the main Shanghai Composite index on Monday had its biggest one-day drop since 2007, was “a cause for real concern”. But underlying economic growth in the world’s second-largest economy was more important than stock market moves, said Osborne, adding that officials in Beijing were focussed on reforms to transform the manufacturing powerhouse into a consumption-led economy. The UK chancellor said the volatility in China, where the main Shanghai Composite index on Monday had its biggest one-day drop since 2007, was “a cause for real concern”.
But underlying economic growth in the world’s second-largest economy was more important than stock market moves, said Osborne, adding that officials in Beijing were focused on trying to transform the manufacturing powerhouse into a consumption-led economy.
“I am reasonably confident, although I don’t think that we can be unaffected by what happens in China, I don’t think it’s going to cause immediate sharp problems in Europe,” he told reporters during a visit to Sweden.“I am reasonably confident, although I don’t think that we can be unaffected by what happens in China, I don’t think it’s going to cause immediate sharp problems in Europe,” he told reporters during a visit to Sweden.
As worries grow about a hard landing for China, the country’s stock market has fallen sharply from a seven-year peak hit in mid-June, prompting Beijing’s official news agency, Xinhua, to admit that the country was facing a “Black Monday” as another wave of selling hit investors. Shares had soared in the previous 12 months – the Shanghai index climbing 150% in the that period – as individual investors were encouraged by cheaper borrowing costs to pile into the rising market. As worries grow about a hard landing for China, the country’s stock market has fallen sharply from a seven-year peak hit in mid-June, prompting Beijing’s official news agency, Xinhua, to admit that the country was facing a “Black Monday” as another wave of selling hit investors.
Shares had soared in the previous 12 months – the Shanghai index climbing 150% in the that period – as individual investors were encouraged by cheaper borrowing costs to pile into the rising market.
There had already been warnings that China’s stock markets were overheating and no longer reflected true company values, nor the outlook for the Chinese economy, when heavy selling set in two months ago. Since then the market has tumbled 38%, further rattled this month by China’s surprise devaluation of its currency, the yuan.There had already been warnings that China’s stock markets were overheating and no longer reflected true company values, nor the outlook for the Chinese economy, when heavy selling set in two months ago. Since then the market has tumbled 38%, further rattled this month by China’s surprise devaluation of its currency, the yuan.
The sell-off intensified on Monday on disappointment that China’s authorities had provided little in the way of fresh support over the weekend, with the Shanghai Composite sinking by nearly 9%.The sell-off intensified on Monday on disappointment that China’s authorities had provided little in the way of fresh support over the weekend, with the Shanghai Composite sinking by nearly 9%.
That sent shockwaves through global marketsalready jittery on the back of more weak Chinese manufacturing figures last week, lingering concerns about near-bankrupt Greece and the prospect of an interest rate rise in the US.That sent shockwaves through global marketsalready jittery on the back of more weak Chinese manufacturing figures last week, lingering concerns about near-bankrupt Greece and the prospect of an interest rate rise in the US.
On stock markets, analysts talked about “panic selling” as the big share indices experienced falls reminiscent of the 2008 financial crisis. On stock markets, analysts talked about “panic selling” as the big share indices experienced falls reminiscent of 2008.
Almost £74bn was wiped off the FTSE 100 index as it tumbled 4.7% to 5,898.9, the lowest for almost three years. The index posted its longest losing streak since 2003 as it fell for a 10th successive session.Almost £74bn was wiped off the FTSE 100 index as it tumbled 4.7% to 5,898.9, the lowest for almost three years. The index posted its longest losing streak since 2003 as it fell for a 10th successive session.
The pan-European FTSEurofirst 300 fell more than 5%, wiping about €450bn (£331bn) off its combined market value in the worst one-day loss since late 2008 after the collapse of US bank Lehman Brothers.The pan-European FTSEurofirst 300 fell more than 5%, wiping about €450bn (£331bn) off its combined market value in the worst one-day loss since late 2008 after the collapse of US bank Lehman Brothers.
Underscoring market unease, the Vix volatility index, commonly viewed as Wall Street’s fear gauge, hit its highest level since January 2009 at one point.Underscoring market unease, the Vix volatility index, commonly viewed as Wall Street’s fear gauge, hit its highest level since January 2009 at one point.
“Today we have witnessed carnage as equity indices the world over fell like dominos including the Dow Jones, falling a staggering 1000 points shortly after opening,” said Mike McCudden, head of derivatives at stockbroker Interactive Investor. “Furthermore, China will have to brace itself for more pain with the dollar being pummelled beyond recognition as any chance of a rate hike this year goes out the window.” “Today we have witnessed carnage as equity indices the world over fell like dominoes including the Dow Jones, falling a staggering 1,000 points shortly after opening,” said Mike McCudden, head of derivatives at stockbroker Interactive Investor.
“Furthermore, China will have to brace itself for more pain with the dollar being pummelled beyond recognition as any chance of a rate hike this year goes out the window.”
Fears of waning demand from China, a vast consumer of energy and raw materials, also sent oil, copper and other commodities to multiyear lows. Emerging Asian currencies, including Malaysia’s embattled ringgit and Indonesia’s rupiah, were also at their lowest for years as investors dumped riskier assets.Fears of waning demand from China, a vast consumer of energy and raw materials, also sent oil, copper and other commodities to multiyear lows. Emerging Asian currencies, including Malaysia’s embattled ringgit and Indonesia’s rupiah, were also at their lowest for years as investors dumped riskier assets.
“Anything tied to commodities or emerging market has been slapped to fresh multi-year or record lows as market participants shift to the havens of the euro, Japanese yen and Swiss franc,” said Jeremy Cook, chief economist at the international payments company World First. “Anything tied to commodities or emerging markets has been slapped to fresh multiyear or record lows as market participants shift to the havens of the euro, Japanese yen and Swiss franc,” said Jeremy Cook, chief economist at the international payments company World First.
Analysts said the sharp sell-off on world markets was not merely down to China and cited concerns that the global economy was losing momentum while investors also braced for the first hike in US interest rates since they were slashed to near zero during the last financial crisis. But few were ready to say a fresh crisis loomed. Analysts said the sharp sell-off on world markets was not merely down to China and cited concerns that the global economy was losing momentum – while investors also braced for the first hike in US interest rates since they were slashed to near zero during the last financial crisis. But few were ready to say a fresh crisis loomed.
“There was no single catalyst for the brutal sell-off,” said Russ Koesterich, global chief investment strategist at institutional investor BlackRock.“There was no single catalyst for the brutal sell-off,” said Russ Koesterich, global chief investment strategist at institutional investor BlackRock.
“The spike in volatility is consistent with two trends: slower economic growth and deteriorating credit market conditions. That said, we don’t think this is a prelude to another 2008-style cataclysm. Leading indicators are still positive and lower oil prices and interest rates should help stabilise growth.” “The spike in volatility is consistent with two trends: slower economic growth and deteriorating credit market conditions.
“That said, we don’t think this is a prelude to another 2008-style cataclysm. Leading indicators are still positive and lower oil prices and interest rates should help stabilise growth.”
Although there are questions over how much the China’s stock market reflects its real economy, the latest turmoil still raises important long-term questions about economic policy, experts said.Although there are questions over how much the China’s stock market reflects its real economy, the latest turmoil still raises important long-term questions about economic policy, experts said.
“It is important not to over-react to stock market fluctuations, and China is likely to continue to grow at rates most European economies, including Britain, can only dream of,” said Jonathan Perraton, senior lecturer in economics at the University of Sheffield. “It is important not to overreact to stock market fluctuations, and China is likely to continue to grow at rates most European economies, including Britain, can only dream of,” said Jonathan Perraton, senior lecturer in economics at the University of Sheffield.
“Nevertheless, this may be one sign that the Chinese model that has been so successful since the late 1970s needs to adapt to new global economic circumstances.”“Nevertheless, this may be one sign that the Chinese model that has been so successful since the late 1970s needs to adapt to new global economic circumstances.”