Chinese stock prices fell roughly 7% on Monday amid disappointing manufacturing indicators and a weak yuan, triggering a newly introduced circuit breaker created to curb dramatic slides in the market.
The selloff in China and subsequent declines around the world evoked the volatility that slammed markets last August, in which a deep selloff in China brought an intraday decline in the Dow of more than 1,000 points on Aug. 24.
At the close of trading, the benchmark Shanghai Composite Index had tumbled 6.9 percent.
The official Xinhua News Agency said China halted trading on the Shanghai and Shenzhen stock markets after shares tumbled. Monday was the inaugural day for the Chinese stock market circuit breaker, which was created to stop the kind of single-day routs that marked the 2015 trading year. Beijing is gradually unwinding emergency controls.
Wall Street opened sharply lower Monday after weak Chinese economic data ignited fears of global growth and sparked a selloff in stock markets across the world.
Investors are justified to worry about global growth as the factory numbers may not fully indicate how quickly China has been slowing down, said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. “This isn’t a blip”.
The jitters extended to Europe. The Nasdaq composite gave up 140 points, or 2.8 percent, to 4,867.
Huang Cengdong, an analyst for Sinolink Securities in Shanghai, said selling accelerated as investors tried to lock in trades before activity was halted.
“But we are likely to see the market stabilise over the next few days because this situation is unlike last summer’s crash, when it was a bubble”, he said. While the German DAX Index plummeted by 4.3 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index slumped by 2.5 percent and 2.4 percent, respectively. Stocks in Australia, Taiwan and Southeast Asia were also lower.
European indexes fell between 2 and 3 percent.
It was the latest sign of the headwinds facing China’s economy that add to a downbeat outlook for Asian exporters. A report from the Institute for Supply Management showed manufacturing contracted last month at the fastest pace in more than six years as factories cut jobs and new orders shrank.
Global markets were also lower after Saudi Arabia severed diplomatic relations with Iran on Sunday.
The fact that 2016’s first big panic attack is being fueled by China is fitting.
In other markets, oil prices retreated as the supply glut overweighed the geopolitical tension in Middle East. Protesters torched a Saudi Arabian Embassy in Tehran on Saturday in response to Saudi Arabia’s execution of 47 prisoners, including Shiite cleric Nimr Baqr al-Nimr. The losses were broad, with all 10 industry sectors of the Standard and Poor’s 500 index down. That sent the price of oil on another wild ride.
The S&P 500 recorded a similar decline. And China’s stock market is less tied than the USA market to the underlying financial system, Adams writes.
In government bond trading, US bond prices rose. They were rewarded by the International Monetary Fund, which made the Chinese currency, the renminbi, an official reserve currency, along with the US dollar, the British pound, the Japanese yen, and the euro.