A SELLOFF yesterday gave global equity markets the worst start to a year on record, as oil again tumbled to 13-year lows.Emerging market assets were especially hard-hit, as the slide in oil made traders and investors increasingly sceptical that governments and central banks could shore up currencies and stimulate their economies.
Developing-country stocks extended their worst start to a year ever, currencies slumped to a record low and the risk premium on emerging-market debt climbed to the highest in more than six years.
Concern that an oil-supply glut will worsen sent Brent crude towards the lowest close since 2003, while the slowest growth in China in a quarter of a century damped the outlook for the global economy.
Brent slipped $1,12, or 3,9 percent, to $27,64 a barrel on the ICE Futures Europe exchange.
“It’s Black Wednesday for emerging markets, as a whole range of bad news whips out billions of dollars from stocks and currencies,” said Bernd Berg, an emerging-markets strategist in London at Société Générale.
“The rout in emerging markets could continue for some time, especially as the major global central banks have exhausted their ammunition in recent years, making it unlikely that they will rescue global markets this time around.”
The panic pushed Wall Street deep into the red on its opening. The blood-letting in global markets dominated corridor talk last night as business leaders and policy makers met in the town of Davos, although the view so far was that it did not signal a financial crisis.
The MSCI Emerging Markets index dropped 3,3 percent in New York and it was set for the lowest close since May 2009.
A gauge tracking 20 developing-country currencies fell 0,9 percent. More than $2-trillion has been wiped off the value of developing-country equities this year, as the MSCI Emerging Markets index slid 13 percent, the worst start to a year since data began to be recorded in 1988. The drop has exceeded the 7,9 percent decline in the gauge in the same period in 1998 during the Asian financial crisis and the drop in 2009 amid the global financial crisis.
The JSE suffered its sharpest one-day fall so far this year. The rand weakened to 16,96/$ before recovering in afternoon trade. The all-share index closed 2,73 percent down to 46,329.80, with mining, banking and financial shares the worst hit.
Major European market indices, including the FTSE and Paris CAC 40, fell more than 3 percent. The JSE all-share index fell 2,72 percent on January 4, the first trading day of the year. It has closed negatively seven times in the first 13 trading days of 2016 and is 8,61 percent weaker for the year.
“It is difficult to call a bottom for this market,” Afrifocus Securities portfolio manager Ferdi Heyneke said. “All the negative news — ranging from China to US rate hikes to the drought and low growth in SA — is affecting our market badly.”
Britain’s blue-chip equity index entered “bear market” territory after falling more than 20 percent from its record highs in April last year. The benchmark FTSE 100 index ended 3,5 percent lower at 5,673.58 points, after touching 5,639.88, its lowest level in more than three years.
“The FTSE is now in a bear market,” said Brenda Kelly, an analyst at London Capital Group. “It’s not a pretty sight, with every single sector in the red.”
Technical analysts define a “bear market” as one in which the index falls more than 20 percent from its previous peak. The Dow Jones industrial average dropped 500 points.
Commodity shares remained at the forefront of the selloff, with energy companies sinking further to five-year lows, and on pace for their worst monthly slump since 2008.
The Standard & Poor’s 500 index dropped 3,4 percent, the most in almost five months, and was on track for its lowest level since April 2014. The Dow lost 521.05 points, or 3,3 percent, and the Nasdaq Composite index fell 3,4 percent.
As the World Economic Forum’s annual meeting in Switzerland wrestled with topics ranging from the effect of robots on jobs to gender and wealth inequality, the MSCI World equity index fell to its lowest since July 2013. If sustained, the 9,9 percent fall in the index in January would be the worst monthly loss since 2009, towards the end of the global financial crisis.
“I don’t believe this is a repeat of 2008… That is not to say that there are not some very significant risks impacting the market — not least of which is China’s slowing growth,” John Veihmeyer, global chairman of accounting group KPMG, said in the Reuters Global Markets Forum on Wednesday.
The International Monetary Fund cut its global growth forecasts for the third time in less than a year to 3,4 percent on Tuesday, as new figures showed that the Chinese economy had grown at its slowest rate in a quarter of a century last year.
While China’s rapid slowdown, combined with a dramatic fall in the price of oil, has spooked investors around the globe, European Economics Commissioner Pierre Moscovici told Reuters he too did not believe there would be any return to an international financial crisis.
“I don’t feel that the financial crisis is coming back… but there are downsides that we need to address,” he said. “There are worries… especially about China, which is undergoing a transition (that) is difficult and uncertain.”
However, some in Davos were less confident about the outlook for 2016 after the rocky start to the year.
“There are a lot of things behind” the selloff, said Steven Schwarzman, CEO of the Blackstone Group, from Davos on Wednesday. “You have economic things, such as the slowing of the US economy, which has been pretty gradual. You’ve got energy going down so quickly that you can almost get windburn. You’ve got China as an issue, which is probably overdone,” he said.
“So when you put those factors together, you have an unattractive brew along with the concern the US Federal Reserve will raise rates and slow the economy further.”
Bloomberg, Reuters, Maarten Mittner