Daily Management Review

European Markets hit Hard Following China Market Rout


08/24/2015




European Markets hit Hard Following China Market Rout
In what can be called a black Monday, stocks in the European market nosedived to endure worst day since 2008.
 
Spurred by worries about the slowing down of the Chinese economy at a rate that is higher than anticipated, European stocks plunged Monday, joining in a sell off in global equities.

There was a drop of 5.3% in Stoxx Europe 600 that closed at 342.01. This marked the cross European market benchmark’s biggest one-day percentage loss since December 2008, the period of the global economic recession. There were just a few elements that managed to move higher in the index like the Spanish renewable-energy Abengoa SA being among the top companies to make advances as it closed up 4.8%.
 
Tthe Stoxx 600 had been pushed into a correction as it is now down 17% from its all-time high, hit on April 15 due to all the major European stock indexes trading in the red. With declines heavily kicked off after Chinese factory activity fell to a six-and-a-half year low in August, the index logged its worst week in four years last week. This, despite the efforts of the Chinese government to stimulate growth.
 
UBS also made a modest downgrade to its Eurozone growth forecasts on Monday even while insisting that a recovery was still on track.
 
The export oriented German market saw a down slide as the euro jumped by 1.7% against the dollar. There was a fall of 4.7% in the DAX 30 to end at 9,648.43 which was below the 10,000 mark for the first time since January.
 
 “Despite the ongoing weakness in some emerging markets, especially China, Brazil, and Russia, domestic drivers in the U.S. and Europe have not deteriorated significantly and we expect growth to remain on track in these economically larger regions,” said Haefele.

“We also believe central banks stand ready to provide support if sentiment worsens further.”
After reports of growth in the first two quarters of this year was slower than it had anticipated, the UBS cut its 2015 and 2016 growth forecasts for eurozone gross domestic product.

 “Nevertheless, we remain constructive on the eurozone,” said Haefele in the note to investors. The analysts at the UBS now expect a 1.4% growth in 2015 growth instead of a 1.6% announced earlier. UBS foresees a GDP expansion of 1.9% in the Eurozone for 2016 when compared to its earlier outlook of 2% growth.
 
FTSE 100 of UK lost 4.7% to reach 5,898.87, its largest loss since the era of the global recession in March 2009. France’s CAC 30 shed 5.4% to end up at 4,383.46 which was its worst drop since November 2011.
 
All these drops followed a virtual rout at the Chinese stock market which lost their gains for 2015. This was a reaction to the failure of the Chinese government to act as expected by the market during the weekend to provide more support for the financial system.
 
While the Hang Seng Index slid 4.8% in Hong Kong, the Shanghai Composite fell by 8.5%
 
“Investors should brace for further volatility,” said UBS Global Chief Investment Officer Mark Haefele in a note to clients dated Aug. 23 and released on Monday.

Ever since the Chinese government devalued its currency earlier this month, the investors have been “on high alert” over growth in China.

“But we expect this bout of risk aversion to pass, with equities in developed markets resuming their upward trend, Haefele said.

(Source: www.reuters.com & www.digitallook.com) 






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