Thursday 23 November 2017

Weak economic data from China sparks turmoil on global markets

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
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Colm Kelpie

Colm Kelpie

A 7pc slump in Chinese stocks reverberated across global shares yesterday, marking a bleak start to the year for international markets amid renewed growth concerns.

Compounding investor jitters, tensions intensified in the Middle East between oil-rich Saudi Arabia and Iran. And those tensions pushed oil prices up temporarily amid fears supplies could be disrupted as Saudi Arabia and Bahrain both cut ties with Iran.

Global oil benchmark Brent, which fell 35pc last year because of concerns of over-supply in a global slowdown, climbed more than a dollar to a high of $38.50 per barrel, but then fell back.

Gold also headed for the biggest gain in a month as investors sought out safe havens.

The sell-off in China was sparked by yet another report of poor performance in the manufacturing sector in the world's second biggest economy, which shrank for a 10th consecutive month in December and by a faster pace than in November, sparking concerns about the health of the sprawling country's economy.

Beijing had to use its new circuit breaker rule - introduced in the wake of the Chinese stock market plunge of last summer - to stem the losses and cancel trading.

The Shanghai Composite Index closed down 6.9pc and the Shenzhen Composite lost 8.2pc, its biggest fall in nine years.

"Concern over the health of the Chinese economy accompanied by spiking tensions in the Middle East have combined to ensure ... firm demand for safe-haven assets," strategists with Dutch lender Rabobank said.

Markets around the world crumbled, with Germany's Dax closing down 4.4pc, the UK's FTSE 100 losing 2.4pc and the ISEQ dropping 1.4pc.

Amid the market volatility, International Monetary Fund (IMF) chief economist Maury Obstfeld said China would remain high on the list of concerns for 2016.

In an internal interview published by the Fund, Mr Obstfeld said the impact of China's slowing economy has been larger than expected.

"The global spill overs from China's reduced rate of growth, through its diminished imports and lower demand for commodities, have been much larger than we would have anticipated," he said.

"Serious challenges to restructuring remain in terms of state-owned enterprise balance sheet weaknesses, the financial markets, and the general flexibility and rationality of resource allocation.

"Growth below the authorities' official targets could again spook global financial markets-but then again, time-honoured methods of enforcing growth targets could simply extend economic imbalances, spelling possible trouble down the road."

US stocks also tumbled to their lowest levels since October to start 2016, with the Dow Jones Industrial average down more than 400 points.

It briefly plunged more than 450 points, before recovering slightly, putting it on pace for its largest percent decline since 1932.

The S&P 500 fell 2.5pc to 1,993.52 at 11:24am. in New York, after ending 2015 with an annual decline for the first time since 2011.

Separately, analaysts forecast that Brazil, Latin America's largest economy, faces its deepest recession this year since 1901.

(Additional reporting Reuters.)

Irish Independent

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