Fra Thomson:
China’s economic growth slowdown and currency devaluation rattled world markets, with stock markets in developed countries following Shanghai share prices downward, though not at such a steep pace. Investors fear that China’s slowdown could drag on already sluggish global growth, while adding to deflationary pressures by depressing prices.
Among measures taken to steady the Chinese market, exchanges proposed a “circuit breaker” to limit index swings and China altered dividend taxes to favor long term investors.
Such tough medicine brought some stability to prices, but came at a cost: equities and futures traded thinly. The sharp drop in volumes underlined how many investors have lost confidence in Beijing’s ability to manage the turmoil that has seen stocks slide more than 40 percent since June.
On the economic front, China’s imports shrank far more than expected in August, falling for the 10th straight month and adding to global investors’ concerns that the world’s second-largest economy may be slowing more sharply than earlier expected, this Reuters story reported.
Imports fell 13.8 percent from a year earlier, more than the 8.2 percent drop economists had expected and an 8.1 percent decline in July, reflecting both lower world commodity prices and persistently sluggish demand at home.
China was surprised by the global reaction to its currency devaluation and has intervened repeatedly to support the yuan since its Aug. 11 devaluation. Officials described the move as a technical adjustment and said they see no basis for further weakness in the yuan.
European investors have been concerned about China’s economic growth slump. Although trade with China represents, at most, less than six percent of any one country’s exports, the percentages have increased in recent years.
LET’S TAKE A LOOK AT THE CORRESPONDING CHARTS:
Shanghai share prices have lost some 40 percent of their value from their high point, and volume has followed a similar path.
Most EU countries have recently ramped up trading with China.
The People’s Bank of China has sought to stabilize the yuan after its Aug. 11 devaluation sparked fears of a currency war.
The declines are significant, but not quite down to levels last seen during the 2008-2009 recession.
In the European Union, Germany has the biggest trade exposure to China. In August, China’s imports from Australia, the European Union and Japan tumbled 29.6 percent, 21.7 percent and 14.7 percent, respectively.
The correlation between the euro/dollar exchange rate and the gap between U.S. and euro zone bond yields, which was the main driver of the single currency earlier this year, has frayed.
Stock market volatility is topping levels last seen in the years leading to the 2008-2009 financial crisis.
Small-country market indices are outperforming their larger brethren so far in 2015.
Just two emerging markets – Hungary and Russia – have outperformed their counterparts in developed markets in 2015
