Dubbed “Black Monday” by stock market traders, yesterday saw the Chinese stock market drop suddenly, after reaching a record high in June. Prior to the shock that yesterday’s activity presented, share prices had been rapidly on the increase over the past year, with the Shanghai index increasing by 150% over the period. Indeed, industry experts were raising concerns that the market was heading for a crisis once wholesale selling of shares began two months ago.
Over the following months, the market has decreased by a significant 38%, with traders unhappy that those in power in China had not offered support to prop up the ailing market. As analysts began to note that the major share indices were demonstrating falls akin to those seen in 2008, the fears that a rise in interest rates in the US, coupled with the ongoing Greek bailout, would weaken markets further.
In reaction to this uncertainty, the FTSE 100 index saw the equivalent of £74bn falling by the wayside, as the index presented its longest negative streak of figures for 12 years. Following this result, the FTSEurofirst 300 dropped by 5%. This represented a loss of £331bn to its combined market value and provided the biggest single one-day loss since Lehman Brothers catastrophic collapse at the outset of the financial crisis in 2008.
The unease created by the Chinese markets stumbling has raised concerns for the European markets continued recovery. Other than Greece, the UK has led the way for the majority of Europe to build confidence in an improving trade and business market. The chancellor, George Osborne, was called upon yesterday to answer questions regarding fears for the European markets. Osborne acknowledged that the situation was “a cause for real concern,” but fell short of stating that the issue would derail the progress of the UK economy.
Osborne said, “I am reasonably confident, although I don’t think that we can be unaffected by what happens in China, I don’t think it’s going to cause immediate sharp problems in Europe.”
Market experts shared their opinions, with many raising doubts that the problems seen by China will stop in the near future. Mike McCudden, the head of derivatives for the stockbroker Interactive Investor said: “Today we have witnessed carnage as equity indices the world over fell like dominoes including the Dow Jones, falling a staggering 1,000 points shortly after opening. Furthermore, China will have to brace itself for more pain with the dollar being pummelled beyond recognition as any chance of a rate hike this year goes out the window.”
However, some experts were quick to raise notes of caution for any predictions of a new financial crisis looming. Russ Koesterich, the chief global investment strategist for BlackRock, stated: “There was no single catalyst for the brutal sell-off. The spike in volatility is consistent with two trends: slower economic growth and deteriorating credit market conditions.
“That said, we don’t think this is a prelude to another 2008-style cataclysm. Leading indicators are still positive and lower oil prices and interest rates should help stabilise growth.”
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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