European and US shares drop sharply as worries over China intensify

Share trading suspended in China before authorities abandoned ‘circuit-breaker’

An investor rests in front of an electronic board turned off after the market suspended at a brokerage house in Beijing

An investor rests in front of an electronic board turned off after the market suspended at a brokerage house in Beijing

 

European shares fell sharply on Thursday after China accelerated the depreciation of the yuan but were helped off their lows after the Chinese securities regulator said it would suspend its new stock market circuit-breaker mechanism. The pan-European FTSEurofirst 300 index closed down 2.3 pe rcent and the euro zone’s blue-chip Euro STOXX 50 down 1.7 per cent, having fallen more than 3 per cent during the session. In Dublin, the Iseq ended the day 1.85 per cent lower.

In the US, stocks extended their three-month lows, with the Dow Jones Industrial Average dropping more than 300 points amid a China-led rout that continued to engulf markets. Banks, technology and industrial companies paced the retreat, with Citigroup, Microsoft and Boeing falling more than 2.6 per cent. Apple sank for a third day, down 2.8 per cent, while Facebook slid 3.6 per cent. “It’s looking pretty ugly. We’ve been scaling down equity positions. It’s time to take a step back to re-evaluate the situation,” said Andreas Clenow, hedge fund manager and chief investment officer at ACIES Asset Management.

The sell-off sparked an early surge in the Euro Stoxx 50 volatility index which rose more than 4 points to its highest level since mid-December.

People’s Bank of China

The People’s Bank of China (PBOC) again surprised markets by setting the official mid-point rate on the yuan, also known as the renminbi (RMB), at 6.5646 per dollar, the lowest since March 2011.

Stock markets in China, which is the world’s second-biggest economy, were suspended for the rest of the day less than half an hour after opening as a new circuit-breaking mechanism was tripped for the second time this week.

Investors have expressed fears that the yuan’s rapid depreciation could mean China’s economy is even weaker than had been imagined.

The worries over China hit mining stocks particularly hard, since China is the leading global consumer of metals, with Anglo American slumping 10 per cent while Glencore fell 5.3 per cent in early trade.

Companies that export to China, such as carmakers, also fell sharply, with BMW down 4.7 per cent, while financial stocks with exposure to emerging markets in China were also under pressure, with Standard Chartered and Aberdeen Asset Management down 2.9 and 6.6 per cent respectively.

“The extent of the slowdown in China is certainly a worry. Investor sentiment is very fragile at the moment,” said Terry Torrison, managing director at Monaco-based McLaren Securities.

Pandora stood out as an early gainer to rise 3.4 per cent after the Danish jewellery maker and retailer reported a 40 per cent rise in 2015 revenues and outlined stores opening for the coming years.

Reuters/Bloomberg