No need to panic over stock market slides, strategists say

NEW YORK -- There's no reason for panic. Worry, yes, but not panic.

That was the opinion of some U.S.

See Full Article

investment strategists after another free-fall on China's main stock market reverberated around the globe Thursday and sent the Dow Jones average to a loss of nearly 400 points.

Stock prices in China fell so fast that for the second time in four days, circuit-breaker mechanisms kicked in and halted trading, this time after just 30 minutes.

China's tumbling stock prices are, in themselves, nothing for investors outside the country to panic over. Because of government regulations, very few foreigners even own stocks on the Chinese markets that seized up.

But the selling was prompted by a surprise currency devaluation by the Chinese government and by worries about a slowdown in the country's manufacturing and service sectors. Because China is the second-largest economy in the world, those problems could spell trouble around the globe.

"This is not a situation that should result in panic; it should result in caution," said Kristina Hooper, head of investment strategies for the U.S. at Allianz Global Investors.

Even though China's economy is still growing at a rate that would be the envy of advanced economies, it's only about two-thirds of what it was five years ago and is expected to slow further.

A slowdown in China is seen as a threat by many investors because the country has been the main engine of global economic growth for years, particularly during the depths of the Great Recession.

U.S. and European companies have rushed to sell cars and a multitude of other products to China's fast-growing middle class. China accounted for more than half of Apple's revenue growth in the fiscal year that ended in September. (Apple stock fell more than 4 per cent Thursday.)

Also, the communist state's huge manufacturing sector is a major buyer of machinery and basic materials such as copper and oil, often from countries such as Brazil and Russia.

As a result, slow growth in China could hurt profits at corporations all over the world.

For companies looking to export to China, the devaluation of the yuan is also bad news: It makes their products more expensive when brought ashore, putting them at a competitive disadvantage.

China says its economy is growing at close to 7 per cent, but many investors don't trust the government's numbers and believe that figure is inflated. Some mutual fund managers say the actual rate could be closer to 4 per cent.

"Chinese growth is clearly slowing, but it is not plummeting," said Ben Mandel, a strategist with JPMorgan Funds.

The slowdown has already hit corporate profits. American heavy-equipment maker Caterpillar is seeing sales weakening not only in China but also in Brazil and other countries that dig out the commodities China used to be so hungry for.

Still, Japan and Europe do a lot more business in China than the U.S. does, and as a result, they face higher risks.

"It will not translate into a mortal threat to U.S. economic growth," Mandel said. "When we talk developed markets, Japan is the most heavily exposed to China, with Europe being in the middle, and last is the U.S."

That's one reason European and Japanese stock indexes have fallen even more than U.S. markets this week. China is a key market for German's BMW and Mercedes Benz, for example, and Germany's DAX index is down 7.1 per cent this week. Japan's Nikkei 225 index is down 6.7 per cent.

After the market closed Thursday, Chinese regulators removed the recently installed circuit breakers, hoping that will allow markets to find their level.

But that may mean even more volatility in a year that has already had a lot.

"We're only seven days into 2016 and we've already had North Korea's nuclear test, Saudi Arabia and Iran cutting diplomatic relations and China devalue their currency," Hooper said. "It's going to be a volatile, turbulent year, and investors need to be prepared for that."



Advertisements

Latest Economic News

  • CRA's new fingerprinting policy could create travel problems for accused tax evaders

    Economic CBC News
    The Canada Revenue Agency has begun to record the fingerprints of every person charged with tax evasion, a move that could severely restrict foreign travel for anyone accused but not necessarily convicted of a criminal tax offence. Source
  • Alberta Energy Regulator names companies falling behind on pipeline safety

    Economic CTV News
    CALGARY - The Alberta Energy Regulator is making it easier for the public to see which oil and gas companies are falling behind on pipeline safety. The regulator launched a new pipeline reporting website Tuesday that lays out several pipeline safety ratings for all operators in the province over the past two years. Source
  • Wal-Mart keeps working to make inroads against Amazon

    Economic CTV News
    NEW YORK -- The nation's largest retailer keeps working to make headway against the largest online seller. Wal-Mart drew more shoppers to its namesake stores in the United States and its online sales soared 29 per cent in the fourth quarter, which covers the critical holiday shopping season. Source
  • Verizon forces Yahoo to cut sale price over hacking scandal

    Economic Toronto Sun
    SAN FRANCISCO — Yahoo is taking a $350 million hit on its previously announced $4.8 billion sale to Verizon in a concession for security lapses that exposed personal information stored in more than 1 billion Yahoo user accounts. Source
  • Seven-year-old girl's job application to Google catches CEO's eye

    Economic CTV News
    For seven-year-old Chloe Bridgewater, it’s never too early to get started on building your career. The girl from Hereford, U.K. penned a job application to Google CEO Sundar Pichai after seeing images of Google offices outfitted with bean bag chairs, go karts and slides. Source
  • French leftist lawmakers take EU-Canada free trade deal to court

    Economic CBC News
    More than 100 French left-wing lawmakers decided on Tuesday to appeal to the country's Constitutional Council to block a contentious free trade deal between the European Union and Canada. Supporters of the Comprehensive Economic and Trade Agreement (CETA) say it will boost economic growth and jobs on both sides of the Atlantic. Source
  • Feds may face 'rough' NAFTA renegotiation: former PM Mulroney

    Economic CTV News
    TORONTO - Former prime minister Brian Mulroney says the federal government may face a "rough negotiation" when it comes to NAFTA, but he believes Canada will nonetheless emerge with strong ties to the U.S. and Mexico. Source
  • Efforts to revise NAFTA will include all three member countries: Freeland

    Economic CTV News
    TORONTO -- All three NAFTA members will be at the table whenever talks to revise the trade deal get underway, Foreign Affairs Minister Chrystia Freeland said Tuesday amid concerns that Mexico could be given short shrift. Source
  • Wells Fargo fires 4 senior managers in sales scandal inquiry

    Economic CTV News
    NEW YORK -- Wells Fargo's board of directors said it is firing four senior managers as part of its investigation into the bank's sales practices scandal. The board said Tuesday the four are Claudia Anderson, the former community bank chief risk officer, Pamela Conboy, the lead regional president in Arizona, Shelly Freeman, the former regional president in Los Angeles, and Matthew Raphaelson, head of the community bank's strategy and initiatives. Source
  • Yahoo salvages Verizon deal with $350M US discount

    Economic CBC News
    ?Yahoo is taking a $350 million US hit on its previously announced $4.8 billion US sale to Verizon in a concession for security lapses that exposed personal information stored in more than 1 billion Yahoo user accounts. Source