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

  • Economists meet with Alberta officials, say worst appears to be over

    Economic CTV News
    EDMONTON - Alberta Finance Minister Joe Ceci met with key economists to look ahead to 2017, with the consensus being the worst is over for the provincial economy. But Avery Shenfeld, chief economist of CIBC, says how much things will improve is still up in the air and tied to the price of oil. Source
  • Dow Jones, S&P 500 rallies to record highs; TSX racks up 100 points

    Economic CTV News
    TORONTO -- Major North American stock markets pushed higher, with the Dow Jones and S&P 500 hitting record levels, as anticipation builds over the corporate policies of U.S. president-elect Donald Trump. In New York, the Dow Jones industrial average surged 297.84 points at 19,549.62, while the S&P 500 added 29.12 points at 2,241.35. Source
  • Bovine TB: More cattle quarantined, but officials 'optimistic' worst is over

    Economic CTV News
    OTTAWA - The quarantine of cattle in a western Canada bovine tuberculosis outbreak continues to grow, even as no new confirmed cases of the disease have been found. Officials say, however, they are cautiously optimistic that the number of animals quarantined may have peaked. Source
  • Commercial real estate sales hit quarterly record as investors hunt yields

    Economic CTV News
    CALGARY - Real estate firm CBRE says Canada hit a record level for commercial real estate sales in the third quarter and is on track to beat an annual record set during the 2007 boom. Source
  • Moose Knuckles reaches deal with Competition Bureau over 'Made in Canada' claims

    Economic CTV News
    OTTAWA -- Winter jacket maker Moose Knuckles has reached a deal with the Competition Bureau regarding concerns over its advertising and labelling of certain parkas that are promoted as made-in-Canada. Under the agreement, reached through mediation, the company has agreed to donate $750,000 over five years to charities in Canada, such as those that provide winter coats to children in need. Source
  • Starbucks to boost number of shops, add more food to menu

    Economic CTV News
    NEW YORK -- Starbucks, looking to the future as its longtime CEO moves to other projects, plans to open 12,000 new locations within five years to boost its number of coffee shops worldwide by almost 50 per cent. Source
  • TransCanada to proceed with $655-million northern Alberta natural gas pipeline

    Economic CTV News
    CALGARY -- TransCanada Corp. says it's moving ahead with a $655-million expansion of its Nova Gas Transmission Ltd. system in northwestern Alberta. The company (TSX:TRP) says the Saddle West Expansion Project will add 29 kilometres of pipeline capacity to existing routes, as well as five compressor units, that together will increase the capacity of the system by about 355 million cubic feet per day. Source
  • N.B. to phase out coal, put price on carbon in new climate plan

    Economic CTV News
    FREDERICTON -- The New Brunswick government will phase out coal as an electricity source under a new climate change plan that also puts a price on carbon. Premier Brian Gallant said Wednesday that climate change is the most important issue to face humankind in modern times and New Brunswick must do its part to combat it. Source
  • Starbucks planning to add 12,000 new outlets around the world

    Economic CBC News
    Starbucks plans to add 12,000 new locations over the next five years. (David Horemans/CBC News) Starbucks plans to open 12,000 new locations within five years, boosting the total number of its coffee shops worldwide by almost 50 per cent. Source
  • WestJet pilots union drive takes flight again

    Economic CBC News
    The Air Line Pilots Association has formalized its drive to unionize pilots at WestJet. After months of laying the groundwork, the U.S.-based international union said in a letter to pilots that it is collecting membership cards, and warns about a pushback from the Calgary-based airline. Source