Global Stocks Sink after Shanghai Index Dives 7 Percent
SEOUL, South Korea – Chinese stocks plunged nearly 7 percent Monday, triggering an emergency trading suspension and pushing global markets sharply lower. The grim start to 2016 was caused by weak Chinese manufacturing data and tensions in the Middle East.
The Shanghai Composite Index dived 6.9 percent to 3,296.66, its lowest level in nearly three months. The drop led the Shanghai and Shenzhen stock markets to halt trading for the remainder of Monday to avert steeper falls, the official Xinhua News Agency said.
It was the first time China used the “circuit breaker” mechanism it announced late last year.
The jitters extended to Europe and were expected to push U.S. markets lower upon their open. The DAX index in Germany, whose export-led economy is sensitive to the fortunes of China, tumbled 4.2 percent to 10,288.22. Britain’s FTSE 100 fell 2.4 percent to 6,090.76 while France’s CAC 40 dropped 2.7 percent to 4,514.03. Dow futures were down 1.7 percent, while S&P 500 futures shed 1.8 percent.
Chinese authorities have been trying for months to restore confidence in the country’s stocks after a plunge in prices in June rattled global markets and prompted a panicked, multibillion-dollar government intervention. Beijing is gradually unwinding emergency controls that included a freeze on new stock offerings.
Concerns about China’s economic slowdown were revived by weak manufacturing data released Monday, along with Middle East tensions, which pushed up oil prices.
Huang Cengdong, an analyst for Sinolink Securities in Shanghai, said selling accelerated as investors tried to lock in trades before activity was halted.
He expects further losses in coming weeks ahead of corporate earnings reports.
“The market will not improve because there will be heavy selling in the near future,” said Huang.
Elsewhere in Asia, Japan’s Nikkei 225 tumbled 3.1 percent to close at 18,450.98 and Hong Kong’s Hang Seng retreated 2.7 percent to 21,327.12. South Korea’s Kospi closed 2.2 percent lower at 1,918.76. Stocks in Australia, Taiwan and Southeast Asia were also lower.
The Caixin/Markit index of Chinese manufacturing, which is based on a survey of factory purchasing managers, fell to 48.2 points in December from 48.6 the previous month, marking contraction for the 10th straight month.
It was the latest sign of the headwinds facing China’s economy that add to a downbeat outlook for Asian exporters. On Friday, an official manufacturing index also showed a persistent contraction in factory activity despite Beijing’s stimulus measures.
China’s factory data is “still a long way off stirring up cheer about global demand recovery,” said Mizuho Bank Ltd. in a daily commentary. “Asian exporters are expected to continue struggling with exports contraction and growth prospects dampened by related manufacturing gloom.”
Escalating tensions in the Middle East pushed up the price of oil, analysts said.
Saudi Arabia said Sunday it is severing diplomatic relations with Iran, a development that could potentially threaten oil supply. The world’s largest oil supplier executed a prominent Shiite cleric that prompted protesters to set fire to the Saudi Embassy in Tehran and Iran’s top leader to criticize Saudi Arabia.
“Oil markets will be concerned that this could be an incremental step in a deteriorating political situation that might ultimately threaten world oil supply,” Ric Spooner, chief analyst at CMC Markets, said in a commentary.
Benchmark U.S. crude added 22 cents to $37.26 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 36 cents to close at $37.04 per barrel on the last trading day of 2015. Brent crude, used to price international oils, rose 48 cents to $38.15 a barrel in London.
In currencies, the dollar weakened to 118.83 yen from 120.26 yen. The euro rose to $1.0922 from $1.0861.
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