World stocks and oil prices plunged Monday as a global sell off accelerated on worries about the health of China’s huge economy.
Asian markets suffered major losses, and the major indexes in Europe fell by about 3% in early trading.
Oil was down 2.7% at just over $39 a barrel.
The benchmark Shanghai Composite declined 8.5%, wiping out all gains made this year. Many companies listed in Shanghai, including some large state-owned firms, fell by the maximum daily limit of 10%.
China’s smaller Shenzhen Composite lost 7.7%.
In Japan, the Nikkei closed down 4.6%, and Australia’s ASX All Ordinaries shed 4.0%. Seoul’s KOSPI Composite lost 2.5%. Asian currencies were trading lower against the U.S. dollar.
Three factors continue to weigh on markets:
1. Concerns that China’s economy is slowing faster than analysts had anticipated.
2. Uncertainty over when the U.S. Federal Reserve will raise its benchmark interest rate.
3. The effect of exceedingly cheap oil — crude is now trading near $40, its lowest point in more than six years.
Last week, the Dow plummeted by more than 1,000 points — its worst five-day trading period since 2011. The Shanghai Composite fell 11.5% over the same period.
Analysts at UBS said that central banks stand ready to provide support if sentiment worsens.
“Investors should brace for further volatility,” they wrote in a research note. “But we expect this bout of risk aversion to pass, with equities in developed markets resuming their upward trend.”
Concerns mounted after a key gauge of China’s manufacturing activity tumbled to its lowest level in 77 months. This week, investors will get a closer look at Chinese imports, a key gauge for many countries that rely on China as a trade partner.
Many investors and economists had bet on a Fed rate hike in September, something it hasn’t done since 2006. But in the Fed’s minutes published last week, committee members sent the market mixed messages.
A rate hike would increase borrowing costs — interest on loans — for companies in emerging markets. It would also make American debt more attractive to investors, which means they could dump emerging market debt.
And then there’s oil. A year ago, a barrel of oil cost about $100 — now it’s trading near $40.
Oil is a lifeline of economic growth for many developing countries, which are also seeing their currencies lose value because of their economic exposure to China.
