China's market rout makes for 'interesting times' on global markets

Richard Edgar

Former Economics Editor

Credit: PA

My Reuters screen is lit up in red.

That means bad news for investors - 98 of the top 100 companies listed on the London market have lost money today.

Looking at who is worst hit gives some clues as to why.

Anglo American (down 7.2 per cent), Glencore (down 5.8 per cent) and Antofagasta (a 5.0 per cent fall) are all mining companies which have been hammered for months as concerns about China's economy have gathered pace.

This morning, trading on the main Chinese market was suspended for ten minutes after shares dropped five per cent, and was then halted altogether after they later fell another two per cent.

Analysts in Asia pointed to weak data from Chinese manufacturers, which showed they have been contracting for five months in a row, adding to concerns about the health of the country's economy.

As China invests and makes less it imports fewer raw materials from around the world (hurting the London-based mining companies, amongst others).

Trading on the main Chinese market was suspended today after share prices dropped Credit: Reuters

Traders in China are also worried about a flood of even more selling which could be triggered next week when 130 billion pounds worth of shares are freed up as a six month emergency ban on selling by major dealers imposed during the crash in markets expires.

It's a very bad start to the year - a time when investors usually return from a break filled with optimism.

In fact, it's the worst start to trading in London since 2000 and in Germany, where the Dax index of the top 30 companies fell 4.3 per cent, it's the worst start to a year since 1988.

China's market rout has had a knock-on effect on Western stock markets Credit: Reuters

But before you reach for a stiff drink, breaking your New Year's resolution, Bloomberg has some reassuring words: Looking back at the first day of trading every year since 1904, they've discovered that the gains or losses on that day - in the US at least - have matched the direction of shares for the rest of that year exactly half the time.

That's the same as flipping a coin.

In other words, today's falls on their own are relatively meaningless. The size of the falls, however, does probably set us up for a year of volatility.

A famous, if probably apocryphal, Chinese curse is "May you live in interesting times."

Today's rout on the markets suggest China may indeed have cast a spell over the world economy in 2016.