The continuing rout on China’s main market prompted a worldwide selloff Monday that sent North American stock markets into a tailspin in early trading before recovering somewhat by late afternoon.
The benchmark S&P/TSX composite index plunged by 768 points, or 5.7% in early trading, then rallied strongly before selling off again. In late-day trading, Canada’s main index was down by 310.51 points at 13,163.16.
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 a still huge loss of 483.88 points at 15,975.87.
The broader S&P 500 composite index was down by 64.19 points at 1,906.70 and the Nasdaq dropped by 140 points to 4,566.04.
“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, 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, where U.S. markets dropped sharply — with computer algorithms and high-frequency trading worsening the losses — before quickly rebounding.
“It certainly felt like that again,” Dabiet said.
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. In afternoon trading the loonie was down 0.24 of a U.S. cent at US75.70¢, its lowest point since August 2008.
On commodities markets, the October contract for benchmark crude oil was down by US$1.43 at US$39.01 a barrel, while September natural gas was off a penny at US$2.66 per thousand cubic feet. December gold was down by US$5.80 to US$1,153.80 an ounce and September copper fell 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,” said 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 HIS Inc. “The most important step is to see China take further action to try to bring their economy to a seven per cent growth path.”
With files from The Associated Press