Worldwide Stocks Unsettled By China, Saudi-Iran Worries

Prompted by fears surrounding the slowing economic growth in China and growing tensions between oil giants Saudi Arabia and Iran, stock markets worldwide have started 2016 at historically low figures.

Global share markets didn’t recover on Tuesday also after their worst January kick-off in years on Monday. Sentiments came into play in shaping the trade market, and traders preferred the relative security of the low-risk Japanese yen.

Global equity markets had fallen sharply on Monday, while bonds and gold rose after a seven percent decrease in Chinese shares, along with weak financial data, renewed fears over global growth on the first trading day in 2016.

The S&P 500 and Nasdaq experienced their worst new year start since 2001, while it was the worst for the Dow after 2008.

Emergent markets were particularly hard-hit by the news emerging from China, with MSCI’s index.MSCIEF plummeting 3.37 percent, while its global stock index.MIWD00000PUS also fell 2.01 percent.

In the United States, the iShares China large-cap ETF (FXI) underwent its largest single-day slide since September as it fell 3.2 percent.

The prices of crude oil fell down amid the alarms surrounding the rate of growth in China, which is the second largest oil consumer in the world. The news that Chinese rail freight volumes went down by 10.5 percent in 2015, their biggest-ever decline in a year also contributed to the increase in worries about economic growth.

After suffering a seven percent plunge in Shanghai, the stocks had dropped by 4.3 percent in Frankfurt, 3.2 percent in Milan, 2.5 percent in Paris, and 2.4 percent in London on Monday.

Wall Street joined in the worldwide plummet with a decline of 1.5 percent, as declines have been observed in the manufacturing market in both China and the United States. With this, serious doubts have been raised on the strength and dependability of economic growth.

China’s Shanghai Composite Index went further down in early trading on Tuesday, suffering a fall of three percent, although it did make some recovery by noon.

A rally in telecom and mining stocks, however, helped European shares edge marginally better in volatile trade, while major averages on Wall Street were also a little higher on Tuesday.

Increasing tensions in the Middle East also raised demands for safe-haven resources. According to the traders, the descent in the market was also fueled in part by concerns surrounding Saudi Arabia cutting off diplomatic ties with Iran, which momentarily sent oil prices increasing.

Crude oil prices went above $38 a barrel at one point of trading, as some predicted the collapse of diplomatic relations between Saudi Arabia and Iran could lead to problems in oil supplies.

Kuwait also recalled its ambassador to Iran on Tuesday after assaults by Iranian protesters on Saudi missions, according to the reports from state news agency KUNA.

“Oil markets will be concerned that this could be an incremental step in a deteriorating political situation that might ultimately threaten world oil supply,” told Ric Spooner, chief analyst at CMC Markets.

“The main reason for the uncertainty is China, given that company numbers and the macroeconomic picture in Europe and the U.S. have not changed,” said Alessandro Allegri, chief executive at Ambrosetti Asset Management – an Italian asset management company.

According to Paul Mendelsohn, chief investment strategist at Windham Financial Services, the investors are vindicated in being anxious about the global growth as the industry numbers may not truly and completely indicate how rapidly the Chinese economy has been slowing down.

“The China seven-percent drop last night and the close of the market, along with Saudi Arabia, are causing investors to rethink to their growth estimates and the geopolitical risk that’s really out there,” said Mendelsohn.

The need for proper business management might not have ever been this high before. The global economy looks dire and in these times, companies need to look beyond the two widely discussed approaches to business management – traditional management and business management. It’s highly beneficial for companies to take at least one physical inventory count throughout a fiscal year, which is a critical part of internal control procedures.

The market performance actually has more to do with geopolitical concerns than China’s economy, which has been slowing down for quite a while but has not yet shown signs of a hard landing as many fear, said Jeffrey Kleintop, Chief Global Investment Strategist at Charles Schwab.

“Today’s move is probably more about drama than data, since the data has actually been holding up OK,” he said.

“Over the last year, we’ve seen a number of these sharp daily moves in the markets tied to geopolitics that only lasted a day,” he added further.

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