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The Great Fall of China sparks global rout

By Religare
|

Panic has struck global stock markets with investors all over the world running helter skelter, shrouded by confusion over China's unprecedented move earlier this month to weaken the Yuan by the most in two decades that has wiped out more than USD 5 trillion from global equities.

The China currency stunner signaled that the world's second biggest economy was in even worse shape than earlier thought. The near 5 per cent devaluation of the Yuan by China over three days (from Aug.11 to Aug. 13), sparked fears that China may have ignited a fresh global currency war to give a competitive edge to its sagging exports, and that other countries may follow in China's footsteps and resort to competitive devaluation, rendering another jolt to the global economy.

 

China's stock market bubble has busted with policymakers less reluctant to resort to fresh measures to prop up equities while the shocking currency depreciation move sent alarm bells ringing over the fast deteriorating health of Asia's economic powerhouse. The benchmark Shanghai Composite, which last week shed 11 per cent, has erased all of this year's gains, on concerns over reduced government support to stock markets.

On Monday, the Chinese benchmark recorded the steepest one-day percentage loss in eight years, of a mammoth 8.5 per cent, sending global stocks, commodities and currencies in a tailspin. Doom and Gloom descended on global financial markets on 'Black Monday' with USD 2.7 trillion wiped out from global equities.

Wall Street succumbed to its biggest drop in four years with the Dow Industrials, Nasdaq Composite and S&P 500 bleeding more than 3 per cent. The Dow Jones Industrial Average crashed by 1,000 points at the opening bell, managing to cut its losses to 588 points before close, in a day of wild swings. Stocks across Asia fell to two-year lows and mayhem greeted traders in Europe with commodities crashing to a 16-year low and oil falling to the lowest level in six and a half years, as the China rout threatened to spread to other parts of the economy, threatening to curb demand and expand gluts of metals and fuels.

There wasn't relief for Chinese traders on Tuesday either, with stocks in China nose-diving over 7.5 per cent, sending the Shanghai Composite to its biggest four-day slide in 19 years.

 

The echoes from the fast crumbling Great Economic Wall of China can be felt across Asia, Europe and the US, sparking a flight to safety as traders seek cover, resulting in bloodbath at global stock markets.

Story first published: Tuesday, August 25, 2015, 23:00 [IST]
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