HONG KONG — Asian markets suffered major losses on Monday, extending a sell off that has touched nearly every corner of the globe.
The benchmark Shanghai Composite opened dramatically lower, shedding 8.4% in early trading. Many companies listed in Shanghai, including some large state-owned firms, fell by the maximum daily limit of 10% within the first hour of trading.
The smaller Shenzhen Composite also declined more than 7.5%.
In Japan, the Nikkei was 2.7% lower in early trading, and Australia’s ASX All Ordinaries was down 2.7%. Seoul’s KOSPI Composite lost 0.9%. Asian currencies were trading lower against the U.S. dollar.
Three factors continue to weigh on markets:
1. Concerns that China’s economy is slowing faster than analysts had anticipated.
2. Uncertainty over when the U.S. Federal Reserve will raise its benchmark interest rate.
3. The effect of exceedingly cheap oil — crude is now trading near $40, its lowest point in more than 6 years.
Last week, the Dow plummeted by more than 1,000 points — its worst five-day trading period since 2011. The Shanghai Composite fell 11.5% over the same period.
Concerns are mounting after data showed that a key gauge of China’s manufacturing activity had tumbled to its lowest level in 77 months. This week, investors will get a closer look at Chinese imports, a key gauge for many countries that rely on China as a trade partner.
Many investors and economists had bet on a Fed rate hike in September, something it hasn’t done since 2006. But in the Fed’s minutes published last week, committee members sent the market mixed messages.
A rate hike would increase borrowing costs — interest on loans — for companies in emerging markets. It would also make American debt more attractive to investors, which means they could dump emerging market debt.
And then there’s oil. A year ago, a barrel of oil cost about $100 — now it’s trading near $40.
Oil is a lifeline of economic growth for many developing countries, which are also seeing their currencies lose value because of their economic exposure to China.
By Charles Riley