Jitters over Chinese slowdown triggers tailspin

Alexis Tsipras resignation sparked concerns on bailout. Picture: AP

The FTSE 100 index of Britain’s biggest shares slid 2.8 per cent – its worst fall in ten months – and the Dow slipped 3.12 per cent as the latest shock from the world’s second-biggest economy exacerbated existing jitters over China’s devaluation of the yuan last week.

“Whatever their intentions the Chinese have created an air of fragility around the globe,” Deutsche Bank said.

There was also renewed anxiety over debt-laden Greece after the resignation of prime minister Alexis Tsipras, likely to prompt elections next month, created doubts over its £62 billion bailout package.

The Footsie closed 180.24 points lower at 6,187.65 – the lowest it has reached since 15 December 2014. The plunge marked nine consecutive daily falls, equalling a run of losses last seen in November 2011.

Latest fears over China were stoked by a key manufacturing index for the country showing its factories contracting to their lowest level since 2009, at the height of the financial crash.Another sell-off of Chinese shares was sparked by the data, with the Shanghai market ending the day down 4 per cent, bringing its losses for the week to 11 per cent.

Other Asian and European markets followed suit as investors fled equities into the traditional safe havens of gold and sovereign country bonds.

Nicholas Teo, market analyst with CMC Markets, said: “China today is no longer just the ‘factory’ of the world. It is an important consumer of the world’s products and services.

“Many companies and industries depend on the Chinese consumers who are now disadvantaged in purchasing power (following the highly unusual devaluation of the currency). So when it sneezes, many around the globe may just catch a cold.”

Julia Wang, Greater China economist at HSBC, warned that China’s economic momentum would continue to slow without “further policy easing measures from monetary easing to fiscal support”.

Japan’s Nikkei index fell 2.9 per cent on the fresh worries, taking its losses for the week to 5.2 per cent. Hong Kong’s Hang Seng index was down 2.4 per cent, for a weekly loss of 7.4 per cent, while the South Korean market shed 1.6 per cent, taking its weekly fall to 4 per cent.

On Wall Street, the Dow fell 530.94 points, or 3.12 per cent, to end at 16,459.75, following a 2 per cent slide on Thursday. The Paris and Frankfurt bourses both fell about 3 per cent.

Britain’s blue-chip stocks have lost more than £190bn, or some 10 per cent of their value, since the Footsie hit a record high of 7,104 in April.

That puts it officially into “market correction” territory. The wider based FTSE All-Share has lost £160bn in the past fortnight as the nervousness about China has intensified.

Meanwhile, oil continued its downward trend, with Brent crude falling 2.5 per cent to $43.34 a barrel. Professor Kamel Mellahi, of Warwick Business School, said: “These are not the figures those concerned about the growth of the Chinese economy were hoping for in the second half of the year.

“They show that the country’s pulse in factories and workshops is slowing faster than expected.” Laith Khalaf, senior analyst at stockbroker Hargreaves Lansdown, said: “It’s been a frightful fortnight for the Footsie.

“Pension funds and private investors alike will be licking their wounds, and wondering when the sell-off is going to come to an end.”