Finally, should China become part of the global bond indices, we estimate it would be the third-largest weight, after U.S. and Japan. Investors ditched beaten-down oil companies, as well as Netflix, Apple and other technology darlings.
“This is clearly the indicators that are coming out of China“, said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. “This is about growth“. The selling is widespread, with all 10 industries of the Standard and Poor’s 500 down.
TECH CORRECTION?: The Nasdaq is now about 8 percent off its recent high of 5,218.86 on July 20.
In response to China’s surprise devaluation of the yuan last week, several emerging market economies have slashed the value of their own currencies to retain their competitiveness.
The Dow Jones industrial average fell 530.94 points, or 3.1 percent, to 16,459.75. The ringgit lost as much as 1.1 percent to 4.1830 per dollar, its weakest since August. 31, 1998.
Wild currency market swings are playing out around the globe.
Traders have been anxious about slowing growth in China and its potential impact on the U.S.
The 10-year U.S. Treasuries yielded 2.11 per cent, having declined from an eight-month high of 2.50 per cent in June. UAE markets have also taken a battering of late. I was a university student interning for the BBC in the summer of 1997 in Jakarta, and I witnessed the full brunt of the Asian financial crisis on some of the most vulnerable in society. Millions of dollars worth of foreign funds pulled out of stock markets in the region.
“They have the luxury of being able to wait and see what happens”, Perli said. “Growth in the emerging markets continues to beat that in the western world, and economic prospects should benefit from greater domestic consumption over time as emerging market populations have increasing levels of wealth and disposable income”.
Chinese equity woes pushed the MSCI Emerging Markets Index to a four-year low last week, erasing an early 2015 recovery driven by those same Chinese stocks. The Ibovespa benchmark extended its slump since May 5th to nearly 20% this week as lender Itau Unibanco Holding SA and oil producer Petroleo Brasileiro SA shares failed to find traction. “These will include major tax cuts and… liberalizing capital markets”. Thailand’s baht has lost 1.2 percent so far this week. The won fell 1.8 percent against the dollar this week.
In Asia, the Shanghai Composite index suffered another steep drop of 4.3 percent. Tokyo’s Nikkei 225 plunged 2 percent in the morning session as Asian stocks fell further Friday after a survey showed Chinese manufacturing weakened this month. Investors could respond by moving even more money out of emerging markets to seek higher U.S. rates.
In the commodity markets, gold gained $6.40 to settle at $1,159.60 an ounce.
ENERGY: Benchmark U.S. crude fell 26 cents to $41.06 per barrel in electronic trading on the New York Mercantile Exchange.
Currencies of countries whose economies are strongly dependent on commodities are particularly struggling. A falling yuan raises the risk that other countries will devalue their currencies to catch up.
ASIA’S DAY: The selling in Asia wasn’t just confined to China.
Some argue that this isn’t necessarily bad news.
For U.S. investors, the sudden sell-off that hit this week is likely another bump in the road, Zirin said, a short stretch when investors’ worries about the global economy bubble over.
“North Korea issues added to blows to all South Korean financial markets”, said Jeong My-young, Samsung Futures research head in Seoul.