Stock market plunge

World stock markets are all significantly down in Monday trading. New Zealand can do little but try and keep the fundamentals here sound. There’s nothing we can do about the world markets. The Shanghai market was down 8.4% yesterday.

NZ Herald: Wall St tumbles as China syndrome rocks world markets

The Dow was down 282 points, or 1.7 percent, to 16,176 points as of 1:54 p.m. Eastern time. The S&P 500 dropped 39 points, or 2 percent, to 1,931. The Nasdaq composite fell 72 points, or 1.5 percent, to 4,663 points. The three indexes are down for the year.

The New Zealand sharemarket was a sea of red ink yesterday as stocks were sold down in response to weakness in the global markets and investors worldwide became increasingly nervous about China’s economic prospects.

By the close of trading, the S&P NZX 50 was down 143 points, or 2.49 per cent, to 5616, with $2.25 billion shaved off the market’s total value. It was the worst day on local markets in four years.

Australia’s All Ordinaries Index fared even worse, slumping 3.66 per cent. In China, the Shanghai Composite Index was down 8.4 per cent at 3211 late yesterday.

A big blip or a slide?

From New York Times: Why Global Financial Markets Are So Turbulent

Last week, global financial markets were churning, but it really only mattered if you were an oil trader, Chinese bureaucrat or hedge fund manager.

Now it’s starting to get scary for everyone.

An 8.5 percent drop in the Shanghai Composite index in Monday’s trading session spread to financial markets across the world. In the United States, the broad Standard & Poor’s 500 index was down 2.5 percent in Monday morning trading, after steeper declines in Asian and European stock markets, falling prices for oil and other commodities, and a rush of money into the safety of United States Treasury bonds.

It started in China:

The immediate trigger to the outburst of global volatility was China, where the sharp drop in stocks Monday continued a rout that has been underway — with periodic pauses thanks to government interventions — all summer.

The Chinese economy is slowing, and the 38 percent drop in the Shanghai Composite Index since June 12 is indeed a huge number. There is no question that this giant economy is struggling with a transition from the investment-and-export-led boom of the last generation toward something more sustainable.

But a few facts make China’s problems less satisfying as an explanation for the turmoil across world markets. The Chinese stock market has risen sharply over the past year as millions of middle-class Chinese citizens took to making investments. Even after its steep drop this summer, the Shanghai index is down less than 1 percent for the year and still up 43 percent from one year ago.

Other markets followed:

Some of the key evidence for the “this is about more than China” story come from other emerging markets, stretching from Malaysia to Mexico, that are also taking it on the chin. Their currencies and stock and bond prices have fallen sharply over the last week. Some of that most likely reflects exposure to the Chinese economy. But some of it reflects something bigger.

In effect, the Fed’s easy money policies led global investors to search for higher-yielding securities, which they found in many faster-growing emerging markets. Money gushed into these countries in search of better returns from 2010 until 2013, driving up prices of assets.

But as the end of the era of cheap dollars has approached, that hot money has pulled out — and created volatile spikes in interest rates and damage to those emerging economies.

And oil.

The price of a barrel of oil fell from around $60 in late June to under $40 on Monday. Over time, that will be good news for American and European energy consumers, but there are complex feedback loops that probably make the commodity sell-off both a cause and a result of the broader emerging markets panic.

Waiting for the Fed.

In the background of all of this is a crucial decision looming for the United States Federal Reserve. Fed officials have expressed confidence that the domestic economy is on track and that the time is right to raise interest rates after nearly seven years of keeping them near zero. It could make that move at its policy meeting Sept. 16 and 17.

Fed officials have indicated a determination to base interest rates on what is most appropriate given the state of the American economy and not to overreact to fluctuations in markets. The latest volatility will test that resolve.

Of course, it is the Fed’s job to set policy based on where the economy is going, not where it has been. If markets keep falling, that could endanger American growth prospects. On the other hand, the Fed’s job isn’t to try to protect investors from the risks of a downturn.

Where too from here?

The Dow Jones is currently down 4.19% (US Monday).

UPDATE: After a down and up day the Dow Jones closed significant;y higher tha it’s opening lows but still finished down 3.58%

Leave a comment

8 Comments

  1. David

     /  25th August 2015

    I have DXD and SPXS which are going short and am up 25% since Friday 💵, all I need now is a big drop in the NZD now if our insane RB Governer would drop his house price OCD.

    Reply
  2. Brown

     /  25th August 2015

    Chickens coming home to roost. The west has made paper money so abundant and cheap it has pushed up prices of shares as the money struggles to find a home. The earnings ratio for most shares is so low as to be ridiculous. People are buying in the hope some sucker will pay more tomorrow. China’s share market had become a disaster in waiting with millions of ignorant fools investing (losing) money they didn’t have.

    Reply
  3. Kevin

     /  25th August 2015

    I wouldn’t worry about Wall St as America is an industrial powerhouse. The concern is with China. The future of China’s economy doesn’t look good. Expect China’s stockmarket to crash even further.

    Reply
  4. PERMABEAR

     /  25th August 2015

    We are now seeing the next phase of the commodity wipe out. The banker induced commodities bubble has been pricked and it will take stocks with it. It’s interesting that the first country to start to wipe out on huge commodity and loan losses has been China…

    The banks are really in some deep shit. The hit they have taken in their commodity holdings means they are fast running out of ammo, as in no money. The losses are no longer easily hidden with fancy accounting footwork. They are entering a time of market triage. This is where banks will have to liquidate positions and book losses. And that means the stock market will crash, reflecting the huge losses they have ALREADY taken…

    The crash has now begun. Just like a Sky City slot machine, the rigged and manipulated market always spits back some of the suckers losses to keep them in the game. In the Wall Street casino, it’s called the rally back……embrace it..

    Reply
  5. Kevin

     /  25th August 2015

    “The Chinese stock market has risen sharply over the past year as millions of middle-class Chinese citizens took to making investments. ”

    When mom and pop start investing, it’s time to get out.

    Reply
  6. Mike C

     /  25th August 2015

    When the Stock Market starts dramatically going up and down like this … you can’t help but wonder if it is the pre-cursor to another “Big One” 😦

    Reply
  7. Taking a 10 year view its a good time to buy solid cash flow companies. Things may head south but once the US starts heading into winter stocks will start to pick up.

    China will get decoupled from the West while it goes through a necessary restructuring of its economy – they have been in the doldrums since 2008/9 but covered it up via a government prime property build and trade cycle….they need to find a better home consumption abse to support their economy as the export led thing has slowed right down

    Reply
  8. Mike C

     /  25th August 2015

    I have seen so many people burned by the stock market over the past 30 years or so.

    Including family members and friends.

    To be honest … I hate the stock market.

    It is not much different to buying lotto.

    Reply

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