The continuing rout on China’s main stock market prompted a worldwide selloff Monday that sent North American markets into a tailspin from which they only partially recovered.
The benchmark S&P/TSX composite index plunged by 768 points, or 5.7%, in early trading, then rallied strongly before sliding again. Canada’s main index finished the day at 13,052.74 — down by 420.93 points from Friday’s close. Every sector of the Toronto Stock Exchange closed lower, with global gold leading the way down with an almost 7% decline.
It was the same story in New York, where the Dow Jones industrial average lost a breathtaking 1,000 points shortly after the open before regaining much of that ground, then faltering again to close down by 588.4 points at 15,871.35.
The S&P 500 composite index was down 77.68 points at 1,893.21 and the Nasdaq plunged 179.79 points to 4,526.25.
“Obviously there was a rush to get out the door and too many people trying to get out at the same time,” says Conrad Dabiet, a senior portfolio manager with Manulife Asset Management.
Dabiet says Monday’s market action reminded him of the flash crash that occurred on May 6, 2010, when U.S. markets dropped sharply — with computer algorithms and high-frequency trading worsening the losses — before rebounding quickly.
“It certainly felt like that again,” Dabiet says, adding that it’s hard to predict which way the markets will go on Tuesday — and whether Monday’s dramatic plunge, as well as last week’s losses, could be the start of a protracted bear market.
“I have no idea,” Dabiet says. “I certainly hope things come back, but we’ve had a market that’s run for a long time here.”
The Canadian dollar was among the currencies trading lower as the price of many of its natural resources fell amid concerns about the strength of China’s economy, the world’s second-largest. The loonie fell US0.54¢ to US75.40¢ — its lowest close since August 2004.
On commodities markets, the benchmark crude oil price closed below the US$40 a barrel mark for the first time since February 2009. The October contract for WTI crude closed down by US$2.21 at US$38.24 a barrel.
September natural gas was off US3¢ at US$2.65 per thousand cubic feet; December gold was down by US$6 at US$1,153.60 an ounce; and September copper fell by US5¢ to US$2.26 a pound.
China’s largest stock market, the Shanghai composite index, fell by 8.5% to close at 3,209.91 points, its biggest one-day loss since an 8.8% decline on Feb. 27, 2007. That had a major spillover effect in Europe, where Germany’s DAX fell by 5%, France’s CAC-40 slid by 5.6% and the U.K.’s FTSE 100 dropped by 4.5%.
Underlying the gloom in China is the growing conviction that policy-makers and regulators may lack the means to stop the losses amid an economic slowdown, a banking system short of cash and investors pulling money out of the country.
“There is a lot of fear in the markets,” says Bernard Aw, market strategist with IG Group.
The panic has underscored the scale of the challenge for Chinese leaders in seeking to curb excess investment and guide the economy toward a more sustainable pace of growth.
“My biggest concern is that global growth momentum is very fragile,” said Rajiv Biswas, Asia-Pacific chief economist with IHS Inc. “The most important step is to see China take further action to try to bring their economy to a seven% growth path.”
With files from The Associated Press