Chinese stocks were absolutely hammered overnight on Monday, tanking 8.5% in what observers are calling the Shanghai Composite’s “Black Monday”.
The chaos — which has been bubbling away in Chinese markets for months — has spread to global markets, with European stock exchanges swallowing steep losses this morning.
China’s slump obviously has big implications for the global economy. Here’s a round-up of what analysts and economists are saying about the whole thing.
Analysts: Nick Lawson
'Chinese shares, having broken the July lows, look like they are completing a full three-wave bubble unwind. Historically an initial crash bounce is followed by a retest and take out of the lows. This is now being experienced, despite the best efforts of the authorities.
'When assets have been mis-allocated, the unwind is almost impossible to stop unless you are compounding the issue (for the future) with even greater excesses. Since the PBOC widened the float, global growth concerns have trumped the expectation of yet more intervention, though that expectation will be rising by the minute.'
'The Shanghai index is currently 7.4% down on the day, not helped by the absence of a much rumoured cut in reserve requirements and despite stories about government pension funds being enabled to buy Chinese stocks. Should this volatility continue over the next couple of weeks, a Fed rate hike in September will be off the cards, although it is perfectly feasible for conditions to settle down well before then. US markets are now pricing in a 25% chance of a hike next month.'
Analyst: Kit Juckes
'Markets are afraid of further economic weakness in China, further pain in global commodity markets and uncertain about Fed and PBoC policy - what they will do and what the impact will be. The divergence between global commodity prices and equities is not a new theme but the danger now is that they begin to re-correlate - as they did when the dotcom bubble burst in 2000 and what had previously been an emerging market crisis became a US recession.
'The alternative view of course, is that US growth is sufficient that demand for raw materials and reductions in commodity supply will between them be sufficient to stabilise commodity prices, but in the near term, we have the Chinese slowdown leading to a commodity overshoot leading to broadening asset market weakness and deepening risk aversion.
Analyst: Arjen van Dijkhuizen
'China-related concerns (stock market correction, CNY devaluation, growth outlook) trigger capital outflows. Still, the adjustment of China's exchange rate regime makes economic sense, while we do not expect a currency war.
'We lowered our growth forecasts for South Korea, Singapore, Taiwan and Thailand, also given weak export performance. With China's economy slowing gradually, we expect regional growth to fall to 6.2% in 2015 (2014: 6.4%).
'Key risks to the outlook: China hard landing, rising risk aversion and further capital outflows in the run-up to the Fed lift-off, FX-related risks, lower growth in advanced economies, high domestic debt levels and geopolitical issues.'
Analyst: Niall MacLeod
'We thought in July that Asia ex Japan was oversold. Since then the market has fallen a further 7%. The FX moves, especially in China, lower growth and commodity prices feeding back into the commodity crunch countries and a weak earnings season are all playing their role in this now 23% peak to trough correction.
'Is a crisis likely? Not in our view. For all our bearishness around Debtopia, we think the region is much less vulnerable than 1998 -- liquidity and current account ratios are far better than then. We also think the region looks in marginally better shape than heading into Tapering. The profit environment is not good, with China still slowing and cuts to EPS. But even here, we are close to a typical recessionary valuation trough.'
Analyst: Connor Campbell
'The People's Bank of China remains in 'see what sticks' mode, and so far nothing has been able to provide an adequate tourniquet for the market-wide bloodshed that has only intensified this Monday. The latest move by the PBOC saw the central bank announce that local government-managed pension funds will be able to invest in the markets for the first time, in an attempt to pour billions of yuan into an equity market that is currently drowning in losses.'
Analyst: Michael Paul
'This week started with a sharp sell-off in Asian markets. The move appears to have stemmed from the inaction of Chinese policy makers over the weekend. Investors had expected authorities to inject liquidity into the system through a cut to bank's reserve requirements. However, the only policy action was a formalisation of rules to allow pension funds to buy Chinese equities, a well trailed event.'