Chinese turmoil sparks fresh pain for savers
SHARES in London fell again yesterday and oil hit a 12-year low after the Chinese stock market suffered another barrage of heavy selling amid worries over the health of the economy.
After the worst opening five days ever for the FTSE 100 index, the blue chip benchmark dropped a further 40.61 points or 0.7pc to 5871.83.
It took losses for the year to 5.9pc or £95.5bn in a blow to millions of savers with pensions and investments tied up in the stock market.
The latest slide came after the main exchanges in China closed sharply lower, with the CSI300 down 5pc while Shanghai was off 5.3pc and Shenzhen 6.6pc, taking its losses so far this year to 20pc.
Larry Summers, the former US Treasury Secretary, warned it would be a ‘serious mistake’ to dismiss recent volatility and pointed out that markets ‘understood the gravity of the 2008 crisis well before’ official organisations such as the Federal Reserve or International Monetary Fund.
‘Signals should be taken seriously when they are long lasting and coming from many markets,’ he said. China’s economy is thought to have suffered its weakest pace
‘We’re in for a volatile and exhausting year’
of growth for quarter of a century in 2015 of around 7pc.
It is feared that the country could be heading for a so-called ‘hard landing’ where the economy slows in a dramatic and uncontrollable manner.
China accounts for around half of global demand for metals such as copper, nickel and aluminium and the weakening economy has sent prices tumbling.
The price of copper – known as ‘Dr Copper’ by traders because it serves as an indicator for the health of the global economy – plummeted to a six-and-a-half year low yesterday.
Oil also tanked to a 12-year low, trading below $32 a barrel for the first time since early 2004, amid concerns about demand from China at a time of plentiful supply.
‘China has torpedoed the hopes of optimists,’ said David Hufton, of oil brokers PVM Oil Associates. ‘If the first week is anything to go by we are in for a long, volatile and very exhausting year.’
Analysts at Morgan Stanley warned that crude could hit $20 a barrel if China aggressively weakens its currency. The authorities in Beijing have already guided the renminbi lower – it fell 1.3pc against the dollar last week and is down more than 5pc since August – in an attempt to boost exports by making Chinese goods cheaper for foreign buyers. But the fall in the currency makes buying oil and other commodities priced in dollars, such as copper, more expensive, denting already flagging demand.
Emerging market currencies have been hammered in recent months as the slump in commodity prices, the devaluation in China and the prospect of higher interest rates in the US take their toll. The South African rand tumbled nearly 10pc to a record low against the dollar yesterday as the raw material-rich country teetered on the brink of recession. The Mexican peso also hit a record low.