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BUSINESSTuesday 5 January 2016
Global woes sink stocks on first day of 2016
BERNARD CONDON
AP Business Writer
NEW YORK (AP) — The new
year got off to an inauspi-
cious start on Wall Street as
stocks tumbled Monday in
a global sell-off triggered
by new fears of a slowdown
in China and rising tensions
in the Middle East.
The Dow Jones industrial
average clawed back
from a steep early decline
but still ended down 1.6
Specialist Meric Greenbaum works on the floor of the New York Stock Exchange, Monday, Jan.
4, 2016. U.S. stocks opened 2016 on a grim note, dropping sharply after a plunge in China and
declines in Europe.
percent, its biggest loss in
two weeks. Markets in Asia
and Europe were down
more.
The wave of selling on the
first trading day of 2016
served as a reminder that
worries over the frag-
ile global economy that
weighed on financial mar-
kets last year are not going
away anytime soon.
“It’s going to be a turbu-
lent year,” said Kevin Kelly,
chief investment officer of
Recon Capital Partners.
“This isn’t a blip.” The trou- “There will be heavy selling
ble started in China, where
weak manufacturing fig-
ures in the world’s second-
largest economy sent the
Shanghai Composite In-
dex plunging 6.9 percent
before Chinese authorities
halted trading.
Investors were also un-
nerved by heightened
tensions between Saudi
Arabia, a huge oil supplier,
and Iran. Saudi Arabia ex-
ecuted a prominent Shiite
cleric, prompting Iranian
protesters to set fire to the
Saudi Embassy in Tehran
on Sunday. The price of oil
swung wildly.
In the U.S., the Dow slumped
276.09 points to 17,148.94. It
was down as much as 467
points earlier in the day.
The Standard & Poor’s 500
index lost 31.28 points, or
1.5 percent, to 2,012.66.
The Nasdaq composite fell
104.32 points, or 2.1 per-
cent, to 4,903.09.
The selling in China spread
quickly across markets in
other Asian countries, then
to Europe. The DAX index in
Germany tumbled 4.3 per-
cent. Britain’s FTSE 100 fell
2.4 percent, while France’s
CAC 40 dropped 2.5 per-
cent.
Huang Cengdong, an ana-
lyst for Sinolink Securities in als, machinery and energy
Shanghai, said he expects
more turmoil in the Chinese
stock market ahead of cor-
porate earnings reports.
in the near future,” Huang
said.
Elsewhere in Asia, Japan’s
Nikkei 225 tumbled 3.1 per-
cent, and Hong Kong’s
Hang Seng retreated 2.7
percent. South Korea’s Kos-
pi closed 2.2 percent lower.
In the U.S., investors were
also worried about data
suggesting that slow over-
seas growth and low oil
prices are continuing to
hurt U.S. manufacturers.
Q&A about the stock market
A report from the Institute turmoil in China and beyond
for Supply Management
showed manufacturing The Associated Press
contracted last month at BEIJING (AP) — After the Chinese stock market started
the fastest pace in more 2016 with a plunge that unnerved investors globally,
than six years as factories here are some questions and answers about the turmoil.
cut jobs and new orders
shrank. WHAT HAPPENED?
In China, the Caixin/Markit China’s main stock index, which tumbled nearly 7 per-
index of manufacturing cent on Monday before trading was halted under a
fell in December for the new emergency measure, has been volatile for months.
10th straight month. The The latest drop appears largely due to the same con-
resulting stock drop mar- cerns: a slowdown in the world’s second-largest econ-
kets in Shanghai and Shen- omy, greater investor caution after markets hit dizzying
heights last year, and Beijing’s attempts to unwind con-
trols on trading.
A report showing a further decline in manufacturing, a
huge sector that has fueled China’s economic surge in
past years, prompted investors to sell on Monday. Chi-
(AP Photo/Richard Drew) na is in the midst of a massive plan to shift its economy
away from its traditional reliance on industry and exports
zhen led authorities to halt toward consumer spending.
trading under a “circuit Another concern is an expected decline in the Chinese
breaker” mechanism an- currency, the yuan. A drop in the yuan could make for-
nounced late last year. eign debt held by Chinese companies harder to bear
It was the first time China and encourage investors to pull money out of the coun-
used the system. try.
The slowdown in China Stocks had more than doubled in the 12 months lead-
is worrisome around the ing up to the first of a series of plunges, as state media
globe because the coun- encouraged the public to invest. Prices started to fall in
try’s manufacturers are mid-June after regulators imposed limits on the amount
huge buyers of raw materi- of money brokerages could lend to customers to trade
shares. That prompted concern among investors that
from other countries. Also, authorities would no longer support share prices.
many automakers and
consumer goods compa- GLOBAL IMPACT?
nies are hoping to sell more China’s stock market is one of the world’s biggest, but
to increasingly wealthy Chi- most investors in the United States and elsewhere own
nese households. very small amounts, if any, of the stocks at the center of
Chinese authorities have the tumult. Markets in Shanghai and Shenzhen are slowly
been trying for months to opening to foreign investors, but many barriers to direct
restore confidence in the ownership remain.
country’s market after a The Chinese stocks that most U.S. and other foreign in-
plunge in June rattled glob- vestors own directly or through mutual funds trade in-
al markets and prompted stead in Hong Kong. These stocks have also fallen, but
a panicked, multibillion- they’ve largely been steadier. They also tend to make
dollar government inter- up relatively small portions of the diversified funds avail-
vention. Ernie Cecilia, chief able in many employer-sponsored retirement accounts.
investment officer of Bryn The bigger worry for investors outside of China may
Mawr Trust, warned that in- be the spillover effect that a tumbling Chinese market
vestors shouldn’t overreact could have. The turmoil in China’s market helped pull
to Monday’s drops.q other global stock markets lower on Monday.
WHY SUCH ALARM?
China is the world’s second-largest economy and has
been a key driver of global growth for several years. But
its growth has been fading recently. In the quarter end-
ing in September it fell to a six-year low of 6.9 percent.
The country’s manufacturing sector is a huge buyer of
raw materials and energy from countries like Australia,
Brazil, Chile and Russia, as well as machines from the
likes of Germany. Many consumer goods companies
and automakers are also hoping to sell more to increas-
ingly wealthy Chinese households.
The potential risks are reflected in the global market
drop on Monday. Germany’s stock market was down
a whopping 4 percent. In the U.S., the Standard and
Poor’s 500 index lost 2.6 percent in morning trading.
RELIABLE INDICATOR?
Not as much as in the U.S. or Europe.
Chinese stock markets have little connection to the rest
of the government-dominated economy. The biggest
companies are state-owned and their health is decided
by official policy.
Traders respond more directly to government cues and
the availability of credit. Stock prices can rise when the
economy is weakening or fall even though conditions
are improving. q