TSX, Dow tank before recovering after Chinese market panic spreads

Quest

http://www.cbc.ca/news/business/tsx-markets-stocks-1.3201342

North American stock markets tanked on Monday as investor fears about a Chinese economic slowdown spread around the world.

The TSX was down more than 200 points with the composite index trading at 13,144 atmidday. The Dow Jones fared even worse, down 1,000 points at one point, before recovering somewhat to be only down by 340 points.

The cause of the worry is a slowdown in China's economy that Beijing appears powerless to stop. Several market watchers used the phrase "Black Monday" to describe the panic selling at open.

"There is a lot of fear in the markets," said Bernard Aw, market strategist at IG.

• Desperate move by China a worrying sign: Don Pittis
• China's reminder that markets are never risk-free: Don Pittis
• The astounding rise of China's currency: Don Pittis

China's main index sank 8.5 per cent — its biggest drop since the early days of the global financial crisis — amid deepening fears that the world's second-largest economy is slowing down.

"China has behaved badly, and is paying for it and will continue to do so," market watcher Mark Grant at Southwest Securities said in a note.

Oil prices, commodities and the currencies of many developing countries also tumbled on concerns that a sharp slowdown in China might hurt economic growth around the globe. Much of the strength in commodity prices like oil and copper in recent years has been predicated on the notion that China has an inexhaustible appetite for them, to feed its growing economy. But that is proving to not be the case necessarily.

The price of the main North American oil benchmark known as WTI lost another $2.35 to trade just below the $38 level.

The Shanghai index suffered its biggest percentage decline since February 2007, with many China-listed companies hitting their 10 per cent downside limits. The benchmark closed at 3,209.91 points, meaning it has lost all of its gains for 2015, though it is still more than 40 per cent above its level a year ago.

Shanghai is now down 38 per cent from its June 12 peak.

China's dimming outlook is drawing calls for more economic stimulus from Beijing, though earlier government efforts to staunch the hemorrhage appear to have done little to stabilize markets.

Asia's gloom spread to European markets, where Britain's FTSE 100 fell 2.7 per cent, Germany's DAX 2.6 per cent and the CAC 40 of France 2.5 per cent.

Japan's Nikkei fell 4.6 per cent to 18,540.68, its worst one-day drop in over two and a half years.

"It is a key moment for China. The equity market in free fall, the banking system increasingly starved of liquidity, rising capital outflows, and a rapidly slowing economy," Angus Nicholson, a market analyst for IG, said in a market note.

"Global markets look set to continue their rout into the European and U.S. sessions," he said, noting that the scale of the losses may have been exaggerated by the thin trading volumes typical of late August.

Some analysts say they see opportunities for bargains in the latest plunge in prices. But underlying the gloom is the growing conviction that policymakers and regulators may lack the means to staunch the losses.

North American stock markets tanked out of the gate on Monday after more evidence mounted that a Chinese economy slowdown is far from over. (Brendan McDermid/Reuters)

The bloodletting spread across Asia, as Hong Kong's Hang Seng index fell 5.2 per cent to 21,251.57. Australia's S&P ASX/200 slid 4.1 per cent to 5,001.30, while South Korea's Kospi lost 2.5 per cent to 1,829.81.

Those declines followed tumbles over the weekend in emerging markets such as Egypt, Dubai and Saudi Arabia.

Fresh evidence of the slowdown in China's economy sparked a wave of selling Friday in Europe and the U.S. that culminated with the S&P 500 losing nearly six per cent for the week in its worst weekly slump since 2011.

The panic has underscored the scale of the challenge for Chinese leaders in seeking to curb excess investment and guide the economy toward a more sustainable pace of growth.

"My biggest concern is that global growth momentum is very fragile. The most important step is to see China take further action to try to bring their economy to a 7 per cent growth path," said Rajiv Biswas, Asia-Pacific chief economist for IHS.