Stock markets in the US, Europe and Asia tumbled on Friday after lacklustre Chinese data fuelled concerns about the impact of China’s slowdown on the global economy.
The figures, which showed that China’s manufacturing sector shrank at its fastest pace since 2009 this month, were the latest sign of a malaise that has sapped growth from Asia to Latin America and sent emerging market currencies into a swoon.
The three main US stock markets saw sharp sell-offs in the opening minutes of trading, while the Russell 2000, the most widely followed index of smaller US companies, slid into a technical correction. Investors sought refuge in gold and bonds.
In the UK, the FTSE 100 fell 2.8 per cent, marking a ninth consecutive day of losses. The benchmark has dropped 5.5 per cent over the past five days — its worst weekly performance this year. The FTSE Eurofirst 300 ended the day down 3.4 per cent, its biggest daily fall in four years.
Equities in Hong Kong, Indonesia and Taiwan entered bear-market territory, while US crude prices plunged below $40 a barrel in New York for the first time since the financial crisis, amid increasing signs that the year-long oil rout still has further to run. Brent, the international benchmark, also fell to its lowest since March 2009, touching $45.10 a barrel.
The falls came after a closely watched independent survey, the Caixin-Markit China Manufacturing Purchasing Managers’ Index (PMI), dropped to 47.1 in the first three weeks of August, down from 47.8 in July, its worst reading since the depths of the financial crisis. A reading above 50 indicates expansion, while one below 50 points to a contraction.
The figures, which come just a week after the devaluation of the renminbi and in the wake of a plunge in the Chinese stock market, add to mounting concerns about the health of the Chinese economy.
They came out as a PMI index released by Markit showed that growth in the US manufacturing sector slowed unexpectedly to its weakest pace in almost two years in August, dipping to 52.9 from 53.8 in July.
Traders said the falls in US stocks were driven by fears that China’s worst domestic slowdown since the global financial crisis could spread to both developed and other emerging markets.
“It is volatility abroad; it’s the Chinese stock market plunge and the fact it seems to a lot of people that the global recovery is starting to flounder more seriously than we’ve seen in the last couple of months,” said Gennadiy Goldberg, a strategist with TD Securities.
The biggest slowdown has been in China’s enormous manufacturing and construction industries, once engines of an economy that is now the world’s largest in purchasing power terms and the second-largest in nominal terms.
The slowdown has hammered prices of the many global commodities bought by China, and many analysts expect prices to fall further as the Chinese slowdown continues. That is driving the currencies of commodity-producing exporters sharply lower against the US dollar.
“In the world of emerging markets, the current environment is a perfect storm for those commodity exporting, current account deficit runners, mostly to be found in South America, Africa and Indonesia,” said Michael Power, strategist at Investec, an asset management firm. “And it could get worse before it improves.”
The currencies of commodity producers such as Brazil, Indonesia, Chile, Malaysia and Russia were all down on Friday, extending heavy losses sustained over the past month. Concerns were also rising over the impact that a slowing China would have on growth in Africa.
“China’s dramatic slowdown is leaving the continent looking exposed,” said Oliver White, an economist at Fathom, a research firm in London. He noted that Chinese imports from Africa were down 40.5 per cent in July from the same month a year ago, according to a six-month moving average.
Nigeria was among the countries that analysts felt were becoming increasingly vulnerable. Bernd Berg, director of emerging market strategy at Société Générale, said that a devaluation of the Nigerian naira over the next few weeks was “inevitable”, adding that a 15 per cent fall was likely.
Part of China’s malaise is that as growth in investment and manufacturing has slowed to its weakest level in more than a decade, there are growing signs that consumption is struggling to take up the slack.
Sales of smartphones in China, the world’s biggest market, have started to fall this year for the first time, according to the research groups IDC and Gartner.
Meanwhile, car sales fell 3.4 per cent in June against the year before, the first decline since early 2013, according to wholesale figures compiled by the China Association of Automobile Manufacturers.
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