The stock market in China sent U.S. stocks, and stocks around the world, tumbling on Thursday. The Dow itself fell 400 points thanks to the drop in Chinese equities, reports the Wall Street Journal.
This all stemmed from the People’s Bank of China, and their subsequent downward evaluation of the yuan. This caused China stock markets to descend 7 percent, right up to the point where trading was stopped after just 30 minutes. This is the second time this week that China has done that.
“U.S. markets are getting wrapped in with global markets, and rightfully so, but so far there isn’t massive panic selling here,” said Jonathan Corpina, a managing partner at Meridian Equity Partners.
Despite these comforting words, all U.S. stocks are declining at the moment, with the Nasdaq and S&P 500 off to their worst starts in years.
Late yesterday evening, there was even more of a selloff in the U.S. market on concerns that China’s turmoil will continue into Friday.
“The interpretation is that the currency market manipulation tells you the economy is doing worse than expected,” said Johan Javeus, a strategist at SEB Group. “Maybe growth is slowing faster, and that’s something we’re concerned about outside China.”
Stocks all over the world were hit after the news of the China stock market. These include Japan’s Nikkei Stock Average, Australia’s S&P/ASX 200, and Hong Kong’s Hang Seng Index, which each lost more than 2 percent on Thursday.
In the midst of the turmoil, there are so many things the average person can learn about the stock market. For instance, U.S.-traded oil declined 2.1 percent to $33.27 with concerns about future demand from China, the world’s second-largest consumer of crude oil.
The news came this morning that China’s stock markets stabilized somewhat on Friday, with a 2 percent increase across the board. CNN reports that China suspended their halting mechanism, which had been there for only four days, to curb the trading losses. Many believe this mechanism was one of the reasons for the poor performance in the marketplace.
But Chinese markets are not yet in the clear.
“The greater uncertainty is how this week’s episode has damaged investor sentiment, and thus capital outflow pressures might linger on,” Mizuho said.
“Market volatility this week suggests that nobody really knows what the policy is right now. Or if the government itself knows or is capable of implementing the policy even if there is one,” DBS said in a currency note Friday. “The market’s message was loud and clear that more clarity and less flip-flopping is needed going forward.”
China has been growing at double-digit rates for a while now, and as their government keeps devaluing the yuan, there are concerns that their economy as a whole is slowing down. They were originally targeting a 7 percent growth rate, but now many experts believe this isn’t even possible.
The story isn’t about Chinese stock markets — it’s more about the Chinese economy as a whole. U.S. stock markets might take a hit for a little while, but things will stabilize. Other experts say otherwise.
“It could be quite a volatile year with a lot of issues lingering from last year brought to the fore in the first week,” said Mr. Melhuish, the head of global equities at Amundi Asset Management.
What’s going to happen with the stock market in China remains to be seen, but after a short rebound on Friday, it seems as if things may have settled down.
[Photo by ChinaFotoPress/Getty Images]