Market slide continues on emerging economy woes
PARIS -- Global stocks continued to drop on Monday, extending a sell-off from last week that was triggered by concern over an economic slowdown in China and tremors among emerging-market currencies.
Markets first became unsettled on Thursday, when a survey indicated a drop in Chinese manufacturing activity, the latest sign that a painful slowdown in the world's No. 2 economy is likely to continue.
When investors worry about global growth, they first pull back from riskier trades in emerging markets. That combined with concerns about specific countries — economic stability in Argentina and a political scandal in Turkey — to convince investors to sell off even more sharply.
"The growing turmoil in emerging markets is inflicting damage ... across the board," said Mitul Kotecha, head of global markets research for Asia at Credit Agricole CIB, in a report.
Asia closed sharply lower on Monday, and for a time it seemed as though sentiment had improved in Europe and the U.S., where indexes opened higher.
But the increases proved fleeting. London's FTSE 100 closed down 1.7 percent at 6,550.66. Financial stocks were hit after Royal Bank of Scotland warned its earnings would be hit by legal costs and charges.
The British index was also dragged down by a nearly 17-percent plunge in the shares of natural gas provider BG Group, which warned on its outlook due to turmoil hitting its Egyptian operations. Vodafone slipped nearly 4 percent after AT&T announced it was not interested in making an offer for the British mobile-phone service company.
Other markets fared better, but not by much. In Frankfurt, Germany's DAX fell 0.5 percent to 9,349.22 while France's CAC 40 shed 0.4 percent to 4,144.56.
The Dow Jones industrial average — which on Friday plunged two percent, its worst day since June — fell 0.4 percent to 15,816.11 despite upbeat earnings from Caterpillar. The broader S&P 500 was down a sharper 0.8 percent at 1,776.56.
Among the biggest movers in financial markets were the currencies of emerging economies.
The Turkish lira hit a record low of 2.39 per dollar on Monday before recovering to 2.2889 per dollar after the central bank said it would hold an emergency policy meeting on Tuesday. The South African rand fell another 0.7 percent to 11.17 per dollar, and Russia's ruble fell 0.6 percent to 34.73 per dollar.
Stocks and currencies in emerging markets have been propped up for years by investors seeking higher returns using a tide of so-called "easy money" from the Fed and other central banks. But now that the end for those policies looks to be near, some investors are fleeing stocks.
In that light, investors will be looking forward to a two-day meeting of the U.S. Federal Reserve starting Tuesday, where officials are expected to reduce its monthly bond buying by another $10 billion to $65 billion. Recent signs of a sustained recovery in the world's biggest economy will play a big role in the decision by Fed officials.
The withdrawal of money from emerging markets is coinciding with a slowdown in their economies. Investors are sensitive to trouble in countries like China as they are playing an increasingly large role in the world economy. Emerging economies account for nearly 40 percent of the global economy, up from 18 percent two decades ago. China's share zipped to 14 percent from 4 percent, according to Societe Generale.
In Asia, investors sought out the perceived safe haven of the Japanese yen, which strengthened to a seven-week high against the dollar, and gold, which was at its highest in more than two months. The higher yen tends to hurt Japan's stocks as it makes its big exporters less competitive. The Nikkei briefly dipped below 15,000 for the first time since mid-November before closing 2.5 percent lower at 15,005.73.
Hong Kong's Hang Seng lost 2.1 percent and Seoul's Kospi dropped 1.6 percent. In mainland China, the Shanghai Composite Index dropped 1 percent. Benchmarks in Taiwan, Singapore, Philippines, Indonesia and New Zealand also slipped. The Australian stock market was closed for a holiday.