Business World

Sunday 25 September 2016

Stock markets fall below 'Black Monday' levels in new China crisis

China suspends circuit breaker mechanism designed to calm markets after it caused mayhem

Published 07/01/2016 | 14:32

Two investors chat in a stock firm in Fuyang, east China's Anhui province. Photo: Getty Images
Two investors chat in a stock firm in Fuyang, east China's Anhui province. Photo: Getty Images

The Iseq Index of Irish shares fell more than 3pc today alongside other markets while nearly €50bn was wiped off British blue chips on Thursday after China allowed its currency to weaken.

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Billionaire investor George Soros, speaking at an economic forum in Sri Lanka, drew similarities between the present environment and the financial crash of 2008.

The rout prompted Chinese authorities to suspend its circuit breaker mechanism, according to reports after falls rocked global markets and sent commodity shares to their lowest levels in more than a decade.

The circuit breaker led to trading being suspended early this week.

Introduced on January 1, it acted more as a panic trigger - it kicks in to suspend trading by 15 minutes if stocks fall by as much as 5pc with half an hour.

London's FTSE hit lows today it experienced on Black Monday last summer as industrial metal and crude oil prices slumped on concerns that major consumer China's economy is even weaker than anticipated.

U.S. stocks opened sharply lower for a second straight day on Thursday as market volatility in China and a relentless slide in oil prices unnerved investors.

China allowed the biggest fall in the yuan in five months, and Shanghai stocks were halted for the second time this week after another brutal selloff.

With Beijing accelerating the yuan's depreciation to make its exports more competitive, investors fear China's economy is even weaker than had been imagined.

Adding to the gloom, oil slid below $33 a barrel to near 12-year lows due to worries over weaker demand from China and an over-supplied market.

Billionaire investor George Soros, speaking at an economic forum in Sri Lanka, drew similarities between the present environment and the financial crash of 2008.

He said global markets are facing a crisis and investors need to be very cautious, Bloomberg reported.

The commodity-heavy FTSE 100 hit a three-week low, dropping 2.7 percent by 1254 GMT, wiping 46.6 billion pounds off the index's market capitalisation.

China let the yuan fall faster, sending regional currencies and stocks tumbling. The offshore yuan hit a record low and local stock markets were suspended less than half an hour after opening, the second emergency suspension this week.

A 5-percent fall for the FTSE 100 so far this week is set to its biggest weekly drop since last August, when China weakened its currency and sent markets into a similar tailspin.

"Similar to last August-September, doing the most damage is not the fact that the Chinese economy is continuing to struggle to turn things around ... but rather the uncertainty going forward in regards to how much will they devalue the yuan," City of London Markets trader, Markus Huber, said.

"Overall sentiment is negative with plenty of room to the downside remaining," he said.

The FTSE 350 Mining and Oil and Gas indexes were both down about 5 percent, tracking falls in the price of commodities such as copper, aluminium and crude oil.

Shares in Anglo American, Glencore, BHP Billiton, BP Group (BP.L) and Royal Dutch Shell fell between about 5 percent and 10 percent.

Luxury firm Burberry, which is sensitive to Chinese demand, fell 3.8 percent.

"The transition of Burberry's equity story towards a more moderate top line growth profile ... has been tricky due to a deteriorating external environment and the brand's above sector-average exposure to slowing Chinese consumer demand," RBC analysts said in a note, cutting their target price on the stock. Emerging market-exposed Aberdeen Asset Management dropped 8.9 percent, while the sell-off also hit Old Mutual, Mondi and Investec. The firms all have exposure to South Africa, and dropped 3.2-4.8 percent as the rand hit a new record low against the dollar.

Elsewhere, Poundland  slumped nearly 10 percent after the discount retailer said there were fewer shoppers over Christmas, meaning profits would come in towards the lower end of forecasts.

Marks & Spencer also fell in volatile trade. It was down 1.7 percent, back in negative territory having been higher, following the company's announcement that its chief executive was leaving and some weak-looking figures.

Some traders said that despite the poor numbers, the company's buyback programme and dividend were still attractive, and the stock saw twice its 90-day average volume traded by midsession, the most of any FTSE 100 stock.

Reuters

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