Panic grips mar­kets

Panic sell­ing in Asia leads to down­turn on TSX on Thurs­day

The Guardian (Charlottetown) - - BUSINESS - THE CANA­DIAN PRESS

Panic sell­ing in Asia prompted by devel­op­ments in China spread across the globe and threw the Toronto stock mar­ket into a tail­spin Thurs­day, cap­ping off seven con­sec­u­tive days of losses and thrust­ing the in­dex into bear mar­ket ter­ri­tory.

The S&P/TSX com­pos­ite in­dex ended the day off roughly 20 per cent from its all-time high in Septem­ber 2014 - a loss con­sid­ered by many as a bear mar­ket.

The in­dex lost 278.59 points, or 2.2 per cent, to close at 12,448.21, as com­mod­ity prices, in­clud­ing oil, con­tin­ued to fall amid per­ceived weak­ness in the Chi­nese econ­omy.

Oil plunged to around lev­els not seen since 2008, with the Fe­bru­ary con­tract for bench­mark crude oil los­ing 70 cents to close at US$33.27 a bar­rel. That pulled down en­ergy stocks on the TSX by more than four per cent.

In New York, the Dow Jones plum­meted 392.41 points to 16,514.10, the S&P 500 lost 47.17 points to 1,943.09, while the Nasdaq de­clined 146.33 points to 4,689.43.

An­drew Pyle, se­nior ad­viser and port­fo­lio man­ager at Sco­tia Wealth Man­age­ment, said it is the worst start to a new trad­ing year for North Amer­i­can mar­kets “in mem­ory.”

But con­cerns about a re­peat of the mas­sive losses seen in 2008 are overblown, said Pyle.

“The U.S. econ­omy and the global econ­omy isn’t crum­bling,” said Pyle. “We’re not in a global re­ces­sion. We don’t have fi­nan­cial panic on Wall Street. We’re hav­ing spo­radic events cre­ate this panic sell­ing that we’ve seen this week.”

The global sell-off came af­ter trad­ing on China’s Shang­hai and Shenzen stock mar­kets was pre­emp­tively halted on Thurs­day for a sec­ond time this week af­ter new “cir­cuit break­ers” were trig­gered when a bench­mark stock in­dex fell seven per cent.

The cir­cuit break­ers also kicked in Mon­day, the first day of trad­ing since they were in­tro­duced on Jan. 1. The China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion said af­ter Thurs­day’s shut­down that the cir­cuit breaker rule had been sus­pended.

The lat­est sell­ing was linked to weak­ness in the yuan, as the gov­ern­ment’s de­ci­sion to let the Chi­nese cur­rency weaken was seen as a bad sign for the health of China’s econ­omy, the world’s sec­ond largest.

Pyle said de­clines seen over the past few days have been “knee-jerk re­ac­tions” to changes hap­pen­ing in China and such losses are un­likely to con­tinue in the com­ing weeks and months.

“China is go­ing from be­ing a pro­duc­tion, man­u­fac­tur­ing and ex­port­ing pow­er­house to a coun­try that is go­ing to be­come more consumption-based - in other words, is go­ing to look more like us,” said Pyle. “And that tran­si­tion takes a while, and it doesn’t hap­pen smoothly.”

The loonie re­mained near 12 1/2-year lows at 70.94 cents U.S., down 0.08 of a cent.

“The prob­lem in Canada right now is that we’ve got this on­go­ing spec­u­la­tion that the Bank of Canada is not done cut­ting rates,” said Pyle. “It’s cre­at­ing a lot more ag­gres­sive sell­ing of the Cana­dian dol­lar.”

In other com­mod­ity news, March cop­per shed seven cents to US$2.02 a pound and the Fe­bru­ary con­tract for nat­u­ral gas rose 11.5 cents to US$2.382 per mmBtu. One bright spot amid the world­wide rout was the pre­cious met­als sec­tor, in­clud­ing gold, which is seen as a safe haven in times of eco­nomic un­cer­tainty. The Fe­bru­ary bul­lion con­tract rose $15.90 to US$1,107.80 an ounce.


Spe­cial­ist John O’Hara works at his post on the floor of the New York Stock Ex­change, Thurs­day. U.S. stocks opened­sharply lower as wor­ries in­ten­si­fied about China’s econ­omy and drop­ping oil prices.

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