TORONTO – The continuing rout on China’s main market prompted a worldwide sell-off Monday that sent North American markets into a tailspin from which they only partially recovered.
The market’s benchmark S&P/TSX index plunged 768 points or 5.7 per cent in early trading, then rallied strongly before sliding again. Canada’s main index finished the day at 13,052.74 points — down 420.93 points from Friday’s close. Every sector of the Toronto stock exchange closed lower, with global gold leading the way down with an almost seven per cent decline.
It was the same story in New York, where the Dow Jones industrial average lost a breathtaking 1,000 points shortly after the open before regaining much of that ground, then faltering again to close down 588.40 points at 15,871.35.
The S&P 500 index was down 77.68 points at 1,893.21 and the Nasdaq plunged 179.79 points to 4,526.25.
“Obviously there was a rush to get out the door and too many people trying to get out at the same time,” says Conrad Dabiet, a senior portfolio manager at Manulife Asset Management.
Dabiet said Monday’s market action reminded him of the flash crash that occurred on May 6, 2010, where U.S. markets dropped sharply — with computer algorithms and high-frequency trading worsening the losses — before quickly rebounding.
“It certainly felt like that again,” Dabiet said.
Dabiet says it’s hard to predict which way the markets will go on Tuesday — and whether Monday’s dramatic plunge, as well as last week’s losses, could be the start of a protracted bear market.
“I have no idea,” Dabiet said. “I certainly hope things come back, but we’ve had a market that’s run for a long time here.”
The Canadian dollar was among the currencies trading lower as the price of many of its natural resources fell amid concerns about the strength of China’s economy, the world’s second-largest. The loonie fell 0.54 of a U.S. cent to $75.40 cents US — its lowest close since August 2004.
On commodity markets, the benchmark crude oil price closed below the $40 a barrel mark for the first time since February 2009. The October contract for WTI crude closed down $2.21 at US$38.24 a barrel.
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September natural gas was off three cents at US$2.65 per thousand cubic feet, December gold was down $6 at US$1,153.60 an ounce and September copper fell five cents to US$2.26 a pound.
China’s largest stock market, the Shanghai composite index, fell 8.5 per cent to close at 3,209.91 points, its biggest one-day loss since an 8.8 per cent decline on Feb. 27, 2007. That had a major spillover effect in Europe, where Germany’s DAX fell five per cent, the CAC-40 in France slid 5.6 per cent and Britain’s FTSE 100 dropped 4.5 per cent.
Underlying the gloom in China is the growing conviction that policy-makers and regulators may lack the means to stop the losses amid an economic slowdown, a banking system short of cash and investors pulling money out of the country.
“There is a lot of fear in the markets,” said Bernard Aw, market strategist at IG.
The panic has underscored the scale of the challenge for Chinese leaders in seeking to curb excess investment and guide the economy toward a more sustainable pace of growth.
“My biggest concern is that global growth momentum is very fragile,” said Rajiv Biswas, Asia-Pacific chief economist for IHS. “The most important step is to see China take further action to try to bring their economy to a seven per cent growth path.”