Crisis in China triggers global stocks slump
A 7% slump in Chinese stocks reverberated across global shares yesterday, marking a bleak start to the year for international markets amid renewed growth concerns.
Tensions intensified in the Middle East between oil-rich Saudi Arabia and Iran, which also compounded the jitters.
And those tensions pushed oil prices up amid fears that supplies could be disrupted as Saudi Arabia and Bahrain both cut ties with Iran, sending Gulf stocks lower and pushing Brent crude higher.
Global oil benchmark Brent, which fell 35% last year due because of fears of over-supply in a global slowdown, climbed more than a dollar to a high of $38.50 per barrel, then slipped back to $37.97.
Gold also headed for the biggest gain in a month as investors sought out safe havens.
The sell-off in China was sparked by yet another report of poor performance in the manufacturing sector in the world's second biggest economy, which shrank for a 10th consecutive month in December and by a faster pace than in November, sparking concerns about the health of the sprawling country's economy.
Beijing had to use its new circuit breaker rule - introduced in the wake of the Chinese stock market plunge of last summer - to stem the losses and cancel trading.
The Shanghai Composite closed down 6.9% and the Shenzhen Composite lost 8.2%, its biggest fall in nine years.
"Concern over the health of the Chinese economy accompanied by spiking tensions in the Middle East have combined to ensure firm demand for safe-haven assets," strategists with Dutch lender Rabobank said.
Markets around the world crumbled, with UK's FTSE 100 down 148.89 to close at 6093.43.
Amid the market volatility, International Monetary Fund chief economist Maury Obstfeld said China would remain high on the list of concerns for 2016.
In an internal interview published by the Fund, Mr Obstfeld said the impact of China's slowing economy has been larger than expected.
"The global spill overs from China's reduced rate of growth, through its diminished imports and lower demand for commodities, have been much larger than we would have anticipated.
Serious challenges to restructuring remain in terms of state-owned enterprise balance sheet weaknesses, the financial markets, and the general flexibility and rationality of resource allocation," he said.
"Growth below the authorities' official targets could again spook global financial markets - but then again, time-honoured methods of enforcing growth targets could simply extend economic imbalances, spelling possible trouble down the road."
US stocks also tumbled to their lowest levels since October to start 2016, with the Dow Jones Industrial average down more than 400 points.