Slowdown in China “spells trouble” for global demand,
China’s economic slowdown has investors worldwide hitting the panic button
“We’re nowhere near where we were in 2008. But there’s some cause for alarm.” EVAN DUDLEY FINANCE PROFESSOR
Stock markets around the world took investors for another stomachlurching ride on Monday on continuing fears of slowing growth in China and falling oil prices.
The Toronto stock market’s benchmark index suffered its biggest one day loss in four years, shedding 420.93 points, or 3.12 per cent of its value, to close at 13,052.74 points.
Combined with the previous week’s losing streak, the S&P/TSX index is down more than 10 per cent for the year, putting it in “correction territory,” in traders’ jargon.
Markets in New York were also down by as much as 3 to 4 per cent on the day, with the Dow Jones industrial average shedding another 588.40 points to close at 15,871.35 on fears China’s slowdown would hamper the U.S. recovery.
“How bad is it? It’s pretty bad,” said Evan Dudley, an assistant professor, finance at Queen’s School of Business. “We’re nowhere near where we were in 2008. But there’s some cause for alarm.”
The roller-coaster ride began early Monday as North American markets opened sharply lower after China’s Shanghai index lost 8.5 per cent of its value, its biggest decline since 2007.
Coming on the heels of China’s unexpected move to devalue its currency, it was another sign the economy may not meet the government’s 7-per-cent growth target for the year.
“The Chinese stock market is a barometer for the Chinese economy,” said Howard Zhang, an economist with IHS Global Insight.
There’s also growing concern that Chinese authorities’ efforts to prop up the economy aren’t working.
That spells trouble for the rest of the world, which has been counting on the world’s second-largest econo- my to generate demand for everything from cars to iPhones to building materials.
The Toronto Stock Exchange’s benchmark index opened the day down 768.5 points, off by 5.7 per cent, while the Dow Jones industrial average shed 1,058 points, or about 6 per cent of its value.
Although Canada has little direct trade with China, the indirect impact on the Canadian market is huge when slowing demand crimps the price of crude oil and other basic materials. The energy sector makes up nearly 20 per cent of the value of the Toronto stock index.
“The Chinese economic slowdown spells trouble for global demand for commodities, which is going to hurt the Canadian economy,” Zhang said. The North American benchmark price for oil fell $2.21(U.S.) a barrel to $38.24 a barrel, below the $40 threshold many producers need to break even and spelling further trouble for Canada’s beleaguered energy sector.
The Canadian dollar closed at 75.40 cents, down 0.54 of a cent.
Markets in Europe, Japan and the rest of Asia were also lower.