China directs global markets in 2016

Added 5th January 2016

Monday's slide in Chinese stocks triggered a market `circuit breaker' and equities indices across the US and Europe plummeted as trading in 2016 began.

China directs global markets in 2016

Major indices all reacted to China on the first day of 2016 trading. The Dow Jones Industrial Average fell 1.58%, the S&P 500 was down 1.52% and the Nasdaq plunged 2.08%.

The FTSE 100 was just over 2% down soon after the opening bell to 6109 and was still there by mid-morning, while Germany’s DAX was down 3.69% to 10,344 and France’s CAC 40 fell 2.52% to 4520.

The turmoil in London and elsewhere in Europe follows on from a near 7% fall in the Shanghai Composite overnight, which triggered the first implementation of China’s new stock market ‘circuit breaker’.

The measures brought in in response to the August crash allow the Chinese authorities to suspend trading in certain scenarios such as a fall in major indices of this magnitude.

The market slide in China was in part caused by the release of soft manufacturing data, which stoked concerns over the strength of the Chinese economy.

Another major factor is the upcoming expiry of a ban on share sales by large investors, which was another government measure prompted by events in August.

“[Monday's] 7% fall on the Shanghai Stock Exchange is a concern for UK-based investors as it means the New Year begins where the old one left off, mired in worries about global growth, currency wars and a bout of deflation,” commented Russ Mould, investment director at AJ Bell.

“The decline almost wipes out all of the 9% gain made by investors in the Shanghai market in 2015 and comes after a reading of 48.2 for December in the Caixin Purchasing Managers’ Index.This was the tenth reading in a row below 50. Scores above 50 suggest economic growth, those below point to economic contraction,” Mould noted.

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