Stock rout spreads after China plunge


A wave of selling gripped global markets as the rout in all but the safest assets deepened.

U.S. stocks plunged, with the Standard & Poor’s 500 Index poised to close in a correction. Chinese shares tumbled by the most since 2007, stocks in Germany headed for a bear market and commodities fell to a 16-year low. The yen strengthened and 10- year Treasury yields slid below 2 percent for the first time since April.

“Everyone seems to be selling off, and there’s panic,” said Michael Woischneck who helps oversee the equivalent of $7.1 billion at Lampe Asset Management GmbH in Dusseldorf, Germany. “There’s no rational choice anymore, no rational reaction. The Americans will add to the European selling.”

More than $5 trillion has been erased from the value of global equities since China unexpectedly devalued the yuan on Aug. 11, fueling concern that the slowdown in the world’s second-largest economy is worse than anticipated. The rout is shaking confidence that the global economy will be strong enough to withstand higher U.S. interest rates, even as bets ease on a September increase.

The S&P 500 fell 3.7 percent at 9:31 a.m. in New York, bringing its drop since a May high past 10 percent. European stocks tumbled 5.9 percent, the most since 2008. The MSCI Emerging Markets Index slid 5 percent, for a seventh straight loss. Basic-resource producers led losses as Brent crude tumbled through $45 a barrel. Treasury 10-year note yields fell as low as 1.97 percent.

“We’re definitely getting a lot of calls from clients,” Michele Santangelo, a money manager at Vunani Private Clients, said by phone from Johannesburg. “You’re seeing a lot of capitulation, people selling for the sake of selling and wanting to get out of the market.”

U.S. stocks taking a hit

Investors in American equities are selling their most-loved stocks, with Apple Inc. and Netflix Inc. losing more than 4 percent. In an unusual mid-quarter update on the business, Apple Chief Executive Officer Tim Cook said on CNBC Monday that the company is seeing “strong growth” in China through July and August.

Some prominent money managers and forecasts have said the selling has gone too far, too fast. Jonathan Golub, chief market strategist at RBC Capital Markets, says the bloodbath in biotechnology and tech stocks is temporary, and investors should buy back the best performers of 2015.

Laszlo Birinyi, the investor whose bullish calls have repeatedly come true since 200, says that while the selloff lashing global equities is painful, its cause is no mystery – and that’s a reason for optimism.

Doug Ramsey, the chief investment officer of Leuthold Weeden Capital Management LLC, whose quantitative research into market breadth, valuation and investor sentiment foreshadowed the drubbing in American stocks last week, says the selling will worsen.

All of the shares in the Stoxx Europe 600 Index retreated Monday, driving the gauge down 6.5 percent. Germany’s DAX Index retreated 5.5 percent, taking the decline from its peak in April to more than 20 percent.

Investors withdrew$1.9 billion from U.S. exchange-traded funds that invest in emerging-market stocks and bonds last week, the most since March.

In Asia, the Shanghai Composite Index slid 8.5 percent and Hong Kong’s Hang Seng Index fell 5.8 percent, tumbling further into a bear market. The measure is about 25 percent below an April high, with a gauge of price momentum dropping to the lowest since the October 1987 stock-market crash.

“This is a real disaster and it seems nothing can stop it,” said Chen Gang, Shanghai-based chief investment officer at Heqitongyi Asset Management Co.

Greater China equities plummeted, with Taiwan’s benchmark gauge dropping as much as 7.5 percent. More than $4 trillion was wiped from the value of Chinese equities from June 12 through Friday.

Commodities Slide

The Bloomberg Commodity Index fell 2.7 percent, heading for the lowest closing level since August 1999.

Brent and West Texas Intermediate crudes both traded at six-year lows of $43.65 and $38.76 a barrel, respectively. Gold, a haven for investors during volatile trading, was little changed at $1,161.41 an ounce, erasing earlier losses, while copper slipped 3.1 percent.

Currencies of basic resource-producing countries led declines, with the ruble tumbling 2.5 percent to 70.86 per dollar and Malaysia’s ringgit sliding 1.8 percent to a fresh 17- year low. South Africa’s rand dropped 2.1 percent and New Zealand’s currency weakened 1.8 percent.

Turkey’s lira retreated 1.2 percent. A deadline for a coalition government passed, putting the country on course for its second parliamentary election this year.

The yen advanced with the euro as Treasuries rallied amid speculation the global selloff will forestall the Federal Reserve’s first interest-rate increase since 2006.

Japan’s currency jumped 1.8 percent to 119.95 per dollar, the strongest since May 19 and the euro climbed for a fourth day against the dollar, strengthening to $1.15 for the first time since February.

Fed funds futures now show a probability of a December rate increase at 51 percent versus 61 percent on Friday. Bets on the first increase in rates in almost a decade in September fell to 28 percent, down from 34 percent. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.