Equities suffer their worst start to a calendar year since the bursting of the dotcom bubble in 2000 as fears over China’s exchange rate grow
Stocks suffered another tumultuous day of trading gripped by renewed fears that the world’s second largest economy was engineering a devaluation of its currency.
Nearly £30bn was wiped off the FTSE 100 after it fell by as much 3pc in its second worst start to a year since 1988. Britain’s benchmark index ended the day 1.96pc down at 5954 having briefly surpassed the lows of August’s Black Monday.
European markets all closed in the red, led by Germany’s Dax index which declined 2.29pc. France’s CAC40 lost 1.72pc and Italy’s FTSE MIB at 1.14pc.
Wall Street extended the rout, with the Dow Jones Industrial average bleeding 300 points, or 1.7pc, at the opening bell.
European and US investors hit the panic buttons after Chinese markets were forced to suspend trading for the second time in just four days.
The blue chip CS1300 had its shortest ever day of trading at just 28 minutes after 7pc of its value was wiped out in less than half an hour.
Beijing’s emergency “circuit breaker” – designed to stem market panic – kicked in once again.
But the mechanism only succeeded in spreading panic, forcing authorities to abandon it on Thursday evening.
The circuit breaker – which imposes a 15 minute trading ban on stocks after they fall by 5pc and then 7pc – was only introduced on January 1. But analysts warned that it encouraged mass selling as investors feared they would not be able to offload shares later in the day.
The turmoil was triggered by the Chinese central bank’s decision to weaken its exchange rate against the dollar on Thursday morning. The People’s Bank of China set its daily fix rate for the renminbi 0.5pc lower – the single largest downward move since August, when devaluation fears precipitated a summer market crash.
The PBoC reiterated that it would allow its dollar exchange rate to be determined by the markets.
But the commitment did not prevent investors piling in to haven assets such as the Japanese Yen and government bonds at the prospect of a new round of global currency wars.
“The market has been in denial,” said Michael Ingram, a market strategist at BGC Partners in London. “Make no mistake, what happens in China this year will shape the market dynamic for the next five.”
Commodities also suffered the brunt of the sell-off. Brent crude continued its relentless downward slide, hitting fresh 12-year lows at $32.12 before rallying on the news that Saudi Arabia was considering floating part of its state-owned oil company, Aramco.
Oil prices are likely to stay permanently depressed as the world’s two biggest suppliers, Saudi and Iran, fight for dominance in an over-supplied market.
“2016 has started with a bang, though the trends are extensions of those from last year – falling commodity and especially oil prices, and concerns about the ability of Chinese policymakers to control the pace of renminbi adjustment,” said Kit Juckes at Societe Generale.