Global stocks tumble on China panic

Global stocks were sent tumbling on Friday (August 21st) after signs of a further weakening in China’s economy spooked investors.

Equities, commodities and emerging market currencies all fell sharply, while gold and safe haven government bonds were favoured in a significant risk-off move as China’s manufacturing sector suffered its biggest shrinkage since 2009.

The Shanghai Composite Index led the way, slipping four per cent after the Caixin/Markit manufacturing purchasing managers' index (PMI) dropped to 47.1 from 47.8 in July. Fears about the state of China’s economy were elevated last week when Beijing devalued the yuan, a move that has spooked markets and investors.

Shares in Hong Kong entered bear market territory, with the Hang Seng sliding 1.5 per cent to its lowest since May 2014. The Nikkei in Japan shed three per cent, as did the main index in Taiwan.

Earlier, stocks on Wall Street suffered a sharp sell-off on Thursday, with the Dow Jones and S&P 500 both dropping around two per cent.

The Dow slumped to its lowest level since October 2014, while the S&P 500 closed down 1.1 per cent for the year. The Nasdaq Composite closed below its 200-day moving average as it dipped 2.8 per cent.

The risk-averse mood was instantly felt in European markets on Friday as bourses opened sharply lower. The FTSE 100 dropped 1.26 per cent in early trade to hit its lowest level this year before paring losses. The DAX in Frankfurt slid 0.4 per cent.

European stocks moved towards a correction, with the Stoxx 600 gauge down ten per cent from its April peak after shedding four per cent this week.

Emerging market currencies continued their slide, with the Malaysian ringgit and Indonesian rupiah both at their lowest level since the 1998 Asian crisis.

The euro was up against the dollar, with EUR/USD climbing towards the 1.13 handle, a level not seen since late June. Sterling was also higher versus the greenback as GBP/USD held above the 1.57 level.