Stocks slump across Europe and Asia following Shanghai’s 7% crash

Financial markets are starting 2016 on a bleak note and China is at the center of it.

Stocks crumbled around the world, with emerging markets falling the most since August and European equities heading for the worst first day of trading ever, as slowing manufacturing triggered a sell-off that halted equity trading in Shanghai, reports BLOOMBERG.

Asian currencies weakened with metals and credit markets, while bonds jumped and the yen rallied on demand for haven assets.

Adding to the turmoil, Saudi Arabia and Bahrain cut ties with Iran, sending Gulf stocks lower and pushing Brent crude up as much as 3.3 percent.

Meanwhile Nigeria’s benchmark stock index lost 271.93 points or 0.95 percent to close at 28,370.32 to begin the year.

“It’s a nasty start for the year,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “It might be the New Year, but old problems remain. Chinese growth concerns have not gone away.”

The slump in developing nations harks back to financial turmoil in August that was fuelled by China’s devaluation of the Yuan.

It shows the pace of growth in the world’s second-largest economy will remain vital for markets in 2016 after a slowdown last year dragged emerging markets lower and sparked a slump in commodities prices.

The Caixin factory index for China came in at 48.2 in December, missing the median analyst estimate of 48.9 in a Bloomberg survey, after the nation’s first official economic report of 2016 on Jan. 1 signalled manufacturing weakened for a fifth month, the longest such streak since 2009.

The MSCI All-Country World Index fell 1 percent by 8:24 a.m. in New York, its biggest drop since Dec. 18. China’s CSI 300 Index of large-capitalisation companies listed in Shanghai and Shenzhen fell 7 percent, setting off a circuit-breaker that suspended trading for the rest of the day. The Stoxx Europe 600 Index fell 2.6 percent, heading for its worst start of the year ever as more than 580 of its companies fell.

The MSCI Emerging Markets Index slid 2.9 percent, the most since Aug. 24, the nadir of a selloff after China’s surprise devaluation of the Yuan. Benchmark gauges in South Korea, Taiwan, Malaysia, South Africa and Poland lost more than 2 percent on Monday.

Chinese stock trading was stopped under the circuit-breaker rules that were finalised last month, which state a move of 5 percent in the CSI 300 triggers a 15-minute halt for stocks, options and index futures, while a move of 7 percent closes the market for the rest of the day.

It took just seven minutes for the second halt to come into effect as shares tumbled after the first suspension ended, according to data compiled by Bloomberg.

The Shanghai Composite Index lost 6.9 percent. Hong Kong’s Hang Seng China Enterprises Index slid 3.6 percent, heading for the biggest loss since August. The offshore Yuan declined to the lowest in five years on speculation China’s central bank will guide the currency lower to help the economy.

Gulf stocks fell amid escalating tension between Iran and Saudi Arabia, with the Bloomberg GCC 200 Index dropping 1.7 percent. Shares in Dubai and Qatar slid more than 1 percent while Saudi Arabia’s Tadawul All Share Index slipped 2.4 percent.

Angola’s currency fell the most since September 2001 to an all-time low after the central bank devalued the kwanza following weaker oil prices last year that hurt government revenue and export earnings.

“It’s never good to come in on the first day of proper trading to see this happening,” said Patrick Spencer, equities vice chairman at Robert W. Baird & Co. in London.

“Volatility will continue to dominate the market this year. There’s shortterm escalating concern in the Middle East and the Chinese manufacturing data is also is worrying markets.”

Brent crude added 1.9 percent after Saudi Arabia’s embassy in Tehran was attacked to protest the Saudis’ execution of a prominent Shiite cleric. Oil last week capped the biggest two-year loss on record amid speculation a global glut will be prolonged as U.S. crude stockpiles expanded at a record rate and the Organization of Petroleum Exporting Countries abandoned output limits.

Base metals fell, with nickel and zinc sliding more than 2 percent on the Chinese manufacturing data. Copper fell 1.4 percent.

Spot gold jumped 1.5 percent to $1,076.57 an ounce on demand for a haven. The precious metal posted a third straight annual decline in 2015, the longest retreat in 15 years.

The yen touched 118.70 per dollar, the strongest level since Oct. 15 and the Swiss franc was also among the biggest gainers among haven currencies.

Australia’s dollar slid to 71.93 U.S. cents, down 1.3 percent from Dec. 31, while New Zealand’s currency was 1.2 percent weaker.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was little changed. The gauge climbed 9 percent in 2015, a third straight gain. The yen had a record fourth annual decline, while the euro slumped a second year, as stimulus in Japan and the euro area widened the gap between monetary policy in those regions and the U.S.