- Global markets fall once again after brief two-day relief rally.
- A “poisonous brewing cauldron of geopolitical and economic issues” is to blame for the risk-off sentiment gripping investors.
- Losses are led by Asia, which has seen virtually all major indexes drop more than 2% on Tuesday.
- Europe is following suit, with Germany’s DAX down more than 1.2%. US futures are also pointing to substantial losses.
- You can follow the latest developments in global markets at Markets Insider.
Global markets slumped once again on Tuesday as the continent’s two-day-long relief rally came to an abrupt end, thanks to a cocktail of negative drivers.
All major Asian indexes lost ground during Tuesday’s session, with the FTSE China A50 the biggest casualty, down more than 3%. Other mainland Chinese indexes lost more than 2%, with the Shanghai and Shenzhen Composite indexes both down around 2.2%.
Losses were not contained to China, however, with Japan’s Nikkei losing 2.7%, and Hong Kong’s Hang Seng dropping close to 3% after a sharp fall into the close.
There was no single catalyst for the losses, with growing geopolitical tensions between Saudi Arabia and the West over the death of journalist Jamal Khashosggi, resurfaced fears about President Trump’s trade war, and generally waning confidence in the Chinese economy all partially to blame.
“Big swings in the Chinese markets continued, with the previous two-day rally moving sharply into reverse. After mulling over Chinese stimulus plans the market is seeing these stimulus measures as cushioning a fall rather than boosting the economy,” Jasper Lawler, head of research at London Capital Group said in a morning briefing.
“It was all too much for the markets on Tuesday. The poisonous brewing cauldron of geopolitical and economic issues led to one of those opens as nuance-less as it was red,” Connor Campbell, analyst at Spreadex added.
Fears abound that the sell-off in China could get worse as a wave of forced share selling kicks in for Chinese companies who use their shares as colleteral for loans.
According to Bloomberg, about 4.18 trillion yuan ($US603 billion,) worth of shares have been put up by company founders and other major investors as collateral for loans, accounting for about 11% of the country’s stock market capitalisation, based on calculations using China Securities Depository and Clearing Corporation data.
The South China Morning Post, citing a report by Tianfeng Securities, said earlier in the week tha tmore than 600 company stocks have fallen to levels where forced sales may kick in.
“It’s a vicious cycle: share drops lead to liquidation and liquidation leads to further share drops,” Wang Zheng, chief investment officer at Jingxi Investment Management told the South China Morning Post last week.
European stocks have also witnessed losses in the first hour of trading, although not as severe as those in Asia. By 8.40 a.m. BST (3.40 a.m. ET), Germany’s DAX has dropped 1.2%, while the UK’s benchmark FTSE 100 index is around 0.7% lower. The Euro Stoxx 50 broad index is down 0.8%.
“Sentiment continues to take a hit from a combination of geopolitical tensions including the growing isolation of Saudi Arabia, Italy’s defiant stance towards the ECB and Brexit,” Lawler said.
US futures are also pointing to big losses when markets open stateside, with the Nasdaq pointing to an opening loss of 1.1%, while both the S&P 500 and the Dow Jones look to fall around 0.9%
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