NEW YORK (AFP) - World stock markets were hammered with heavy losses on Friday, as China’s economic woes triggered European and Wall Street equity sell-offs and stirred up fears for global growth.
Losses of more than 3 per cent on Wall Street capped the day of market carnage, which began with a 4.27 per cent drop in Shanghai after another unnerving sign of slowdown in China’s manufacturing sector.
It capped the Shanghai exchange’s worst week since 2011, losing 11.5 per cent.
Among leading indices, Tokyo shares lost 2.98 per cent; Hong Kong 1.53 per cent; London’s benchmark FTSE 100 2.83 per cent; the CAC 40 in Paris 3.19 per cent; and Frankfurt’s DAX 30 2.95 per cent.
The three key US indices were, after two days of heavy selling, all below where they started 2015, after repeatedly punching through record highs during the past eight months.
The blue-chip Dow Jones Industrial Average gave up 3.12 per cent for the day and was down 5.82 per cent for the week.
The S&P 500 shed 3.19 per cent in the session and 5.77 per cent for the week– a loss representing some US$1.14 trillion (S$1.6 trillion) in share value. The tech-heavy Nasdaq fared worse, losing 3.52 per cent and 6.78 per cent in the week.
Among other key markets, Singapore and Sydney dropped 1.3 per cent; Johannesburg 1.47 per cent, and Brazil’s Ibovespa 1.99 per cent.
The spark to the selloff was weak Chinese manufacturing data: Caixin’s purchasing managers’ index came in at 47.1 this month – below 50 means contraction – falling from 47.8 in July and the worst reading in over six years.
But behind that were the signs that Beijing is struggling to prevent a stall in the world’s second-largest economy, and that its actions – like the devaluation of the yuan last week – was having a negative impact throughout emerging markets and would drag in developed economies as well.
“China’s currency devaluation is at the heart of the rout in global markets,” said Jasper Lawler, market analyst at CMC Markets UK.
The effect of the downturn in China could be seen in the hit on specific US blue-chip stocks with large China business: Apple lost 6.12 per cent on Friday; General Motors slid 4 per cent; and Boeing lost 3.88 per cent.
Meanwhile, oil prices slid to six-year lows during trade Friday in part on big importer China’s weakness, the impact spilling over to the shares of oil industry businesses.
“We have a challenging economic situation in China, which has now taken the extreme step of devaluing its currency to support its economy. That weakness is ricocheting through emerging markets and the global industrial sector,” said Lisa Emsbo-Mattingly, director of asset allocation at Fidelity, in a client note.
‘CATCHING FALLING KNIVES’
“With more Chinese-led carnage on the markets today, only the very brave are venturing into equities as buying stocks is currently like catching falling knives,” said Mike McCudden, head of derivatives at stockbroker Interactive Investor.
In New York, some analysts called the fall a long-needed correction in shares whose valuations – especially for tech companies – were pushed too far helped by the continued supply of cheap money from the leading central banks in Tokyo, Beijing, Frankfurt and Washington.
Patrick O’Hare of Briefing.com said that underpinning the selloff is investors losing faith in the ability of central bankers to use monetary policy to stimulate growth.
But he also pointed to pricey valuations recently, given modest growth prospects in the US economy.
“A market trading at roughly 17.5 times forward 12-month earnings is priced for much better things economically speaking that have yet to avail themselves as the Federal Reserve had hoped they would.”