World Economy

Alarm Bells Ring as China Shares Sink 9%

Alarm Bells Ring as  China Shares Sink 9%Alarm Bells Ring as  China Shares Sink 9%

Alarm bells rang across world markets on Monday as a 9% dive in Chinese shares and a sharp drop in the dollar and major commodities panicked investors.

European stocks opened more than 3% in the red after their Asian counterparts slumped to 3-year lows as a three month-long rout in Chinese equities threatened to get out of hand, Channel NewsAsia reported.

Safe-haven government bonds, yen and euro rallied as widespread fears of a China-led global economic slowdown kicked in.

"Markets are panicking. Things are starting to look like the Asian financial crisis in the late 1990s. Speculators are selling assets that seem the most vulnerable," said Takako Masai, head of research at Shinsei Bank in Tokyo.

With serious doubts now emerging about the likelihood of a US interest rate rise this year, the dollar slid against other major currencies. It was last 121.05 yen having gone as low as 120.73 in Asia, a level last seen on July 9.

The Australian dollar tanked to six-year lows and many emerging market currencies also plunged, whilst the frantic dash to safety pushed the euro to a 6-1/2-month high.

Commodity markets took a fresh battering. Brent and US crude oil futures hit 6-1/2-year lows as concerns about a global supply glut added to worries over potentially weaker demand from China.

US crude was down 3% at $39.20 a barrel while Brent lost 2.4% to $44.40 a barrel.

Copper, seen as a barometer of global industrial demand, tumbled 2.5%, with three-month copper on the London Metal Exchange hitting a six-year low of $4,920 a ton. Nickel slid 4.6% to its lowest since 2009 at $9,730 a ton.

Hope Not Lost

Despite the pervasive bearishness dogging the market, not all have lost hope on the Chinese authorities' ability to rescue the market from its swoon.

"A lot of people are extremely negative, they think it's a sign that things are so out of control and there's nothing left for these guys to do," said Tim Seymour, managing partner at Triogem Asset Management, weighing in on China's decision to allow pension funds to invest in stocks.

"China has $4 trillion of reserves between their dollar reserve and treasury holdings that they can paper over a lot of problems. They can push their pension funds much more aggressively than any other government in any part of the world," he said.