With the latest financial slide rooted in disappointment that Beijing did not announce expected policy support over the weekend, all index futures contracts yesterday slumped by their 10 per cent daily limit, pointing to more bad days ahead.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 5.1 per cent to a three-year low. Tokyo’s Nikkei ended down 4.6 per cent and Australian and Indonesian shares hit two-year troughs.
“China could be forced to devalue the yuan even more, should its economy falter, and the equity markets are dealing with the prospect of a weaker yuan amplifying the negative impact from a sluggish Chinese economy,” said Eiji Kinouchi, chief technical analyst at Daiwa Securities in Tokyo.
Just as worrying was evidence that developed markets were becoming synchronised with the troubles. London’s FTSE with its large number of global miners and oil firms, was down for its 10th straight day, its worst run since 2003.
The pan-European FTS Eurofirst 300 was last down five per cent at 1,355 points, wiping around €400 billion off the index and taking its losses for the month to more than one trillion euros.
“We are in the midst of a full-blown growth scare,” strategists at JP Morgan Cazenove said in a note. Meanwhile, however, the leaders of Germany and France voiced confidence yesterday that China would take the necessary steps to stabilise its economy, playing down the impact of a recent plunge in Chinese stocks on the global economy.
“China is a big country, it’s the number two economy in the world. It’s one of the most competitive economies and it has considerable resources,” French President Francois Hollande said at a news conference in Berlin.
“It will find the appropriate responses and the global economy is solid enough to grow independent of the situation in China,” he added, noting that falling stock markets would not determine “our positions”.
Chinese stocks slumped almost nine per cent yesterday, their worst performance since the depths of the global financial crisis.
The plunge wiped out what was left of 2015’s gains, which in June stood at more than 50 per cent. German Chancellor Angela Merkel, hosting Hollande and Ukrainian President Petro Poroshenko, said she expected China to do “everything it possibly can” to stabilise the situation.
She noted that the International Monetary Fund (IMF) does not expect a lasting crisis in China.