Stocks tremble as China weakens

Global markets had another tricky start to the week. On Tuesday, the FTSE 100 lost 3%, pan-European stocks lost 2.8% and US stocks tumbled by 3%.

Global markets had another tricky start to the week. On Tuesday, the FTSE 100 lost 3%, pan-European stocks lost 2.8% and US stocks tumbled by 3%, before recovering some poise mid-week. But the volatility in the oil market put equities in the shade. By the end of Monday the price had gained 27% in three days, the best such performance since Iraq's invasion of Kuwait in 1990. But on Tuesday it slid by around 8%. News that Chinese manufacturing had hit a six-year low in August unnerved investors, while the Chinese authorities stepped up their campaign to boost domestic shares, with scant success. They paraded a financial journalist on TV, who "confessed" to stoking market panic.

What the commentators said

The volatility is more about dwindling confidence in the Chinese government's ability to steer the economy, following their cack-handed performance with the stockmarket. Almost every move made by Beijing in the past two months "has looked nuts", said Patrick Hosking in The Times. Banning large shareholders from selling, or telling state companies to hoover up stocks, made it even more obvious that the market "is being artificially propped up" and all the more likely to fall once the prop is gone.

But the last few days have taken a "sinister" turn. A TV confession announcing that 197 people had been punished for rumour-mongering about stocks laid bare "the absurdity of trying to run conventional share markets in a totalitarian state", said Hosking. "Beijing appears to have learned nothing during the past month," agreed The Guardian's Nils Pratley. There has been no mention of the real story: in the past year the government "manufactured an extraordinary bull market that was bound to collapse because valuations reached absurd levels". Meanwhile, some investors continue to worry that raising US rates could be a mistake while China might respond to more poor data with a devaluation, which would threaten to export deflation. "Get used to the wild stockmarket rides."

Recommended

The MoneyWeek Podcast with Russell Napier at the Library of Mistakes
Investment strategy

The MoneyWeek Podcast with Russell Napier at the Library of Mistakes

Merryn talks to Russell Napier about Edinburgh’s Library of Mistakes, the age of debt and financial repression, plus why he has never invested in Chin…
27 May 2022
What to buy as the tech-stock bull market crashes
Tech stocks

What to buy as the tech-stock bull market crashes

The decade-long bull market in tech stocks has come to a rapid halt. Investors need to distinguish solid stocks from speculative ones rather than just…
27 May 2022
What sardines can teach investors about today's markets
Investment strategy

What sardines can teach investors about today's markets

A California tale of “eating sardines” and “trading sardines” can help us divide investments into speculative and real, says Merryn Somerset Webb. Som…
26 May 2022
Is it time to pick up growth stock bargains yet?
Investment strategy

Is it time to pick up growth stock bargains yet?

If you’re thinking of picking up some bargains from the tech stock crash, beware – there are still plenty of “growth traps” out there. John Stepek exp…
26 May 2022

Most Popular

The world’s hottest housing markets are faltering – is the UK next?
House prices

The world’s hottest housing markets are faltering – is the UK next?

As interest rates rise, house prices in the world’s most overpriced markets are starting to fall. The UK’s turn will come, says John Stepek. But will …
23 May 2022
The Federal Reserve wants markets to fall – here’s what that means for investors
Stockmarkets

The Federal Reserve wants markets to fall – here’s what that means for investors

The Federal Reserve’s primary mandate is to keep inflation down, and lower asset prices help with that. So, asks Dominic Frisby – just how low will st…
25 May 2022
Should you be worried about energy windfall tax proposals?
Energy

Should you be worried about energy windfall tax proposals?

Calls have been growing for a windfall tax on UK oil and gas producers. It's a popular idea, but is it a good one? And what does it mean for investors…
24 May 2022