The howls from burnt investors began from the moment markets opened in Shanghai and Hong Kong in the middle of Sunday night, UK time. Panicking Chinese investors bombarded broking houses with sell orders as prices plunged by about 5 per cent in the first few minutes of trading.
The absence of any new policy initiative from Beijing to support the battered share market triggered a fresh round of panic-selling and the biggest one-day falls since 2007. “What can I do? I want to die. My blood and sweat money!” wrote one angry investor on Sina Weibo, a local equivalent of Twitter, which is blocked in China. “Why have I never learnt? Turn back the clock, I wouldn’t buy shares any more.”
That sentiment was echoed by millions of inexperienced private investors in China, lured into the market over the past year by the vision of apparently easy profits, but who, since June, have seen those profits turn to ever bigger losses as the bubble burst.
More professional investors and academics expressed concern about the mixed messages coming from Beijing, which had earlier introduced measures to try to prop up share prices and stimulate the slowing economy.
“Policymakers look lost,” Oliver Barron, an analyst at NSBO, the investment bank, in Beijing, said in a research note, observing that confusion about intentions and approaches extended from stocks into monetary and exchange rate policy. “The market needs bigger things: growth, reform, easing. Piecemeal support is not enough any more.”
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Andy Xie, a Shanghai-based independent economist formerly with Morgan Stanley, said that the government needed to cut taxes drastically to boost consumption. “It’s just a madness now,” he said.
By the close of trading, the CSI 300 index, a barometer of Chinese blue-chip companies, had tumbled by 8.8 per cent, while the closely watched Shanghai Composite index was down 8.5 per cent. Chinese index futures contracts — an indicator of future demand for shares — slumped by the maximum 10 per cent daily change allowed, suggesting the days ahead may continue to be plagued by more selling pressure.
The alarm spread to other financial markets. The Nikkei 225 index of Japan shed 4.6 per cent to close at 18,541. Shares in Australia, a major producer of the iron ore, coal and wool that China consumes, slumped. The S&P/ASX 200 index tumbled 4.1 per cent to 5,001.
“Things are probably going to get worse before they get better,” Nader Naeimi, of Sydney-based AMP Capital Investors, warned.
The contagion also spread to other markets, including commodities. The price of virtually every basic material from raw sugar and palm oil to rubber and copper was marked lower. If China, the world’s biggest consumer of many of these products, was seriously slowing, the outlook for their prices was souring. The Bloomberg Commodity Index, which tracks 22 raw materials, shed 2.2 per cent to 85.85.
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“The perception that the Chinese government can control what is going on in the economy has been shattered,” Carsten Menke, a commodity analyst at Julius Baer, said. “You can see it in the equity market crash. The fear is there might be further pockets of weakness we don’t see.”
The one exception was gold, the traditional safe haven in times of market stress. It was steady at $1,159 an ounce.
By the time traders in European centres, including London, were arriving at their desks, the negative momentum was still building. George Osborne’s announcement shortly after 7am of his “fantastic news” in selling another 1 per cent of Lloyds Banking Group was shrugged aside by nervous traders far more exercised by the turmoil in Asia.
The FTSE 100 slumped by 175 points to 6,012 in the first seconds of trading. For a while, the symbolic 6,000-mark remained unbreached, but shortly before midday a fresh wave of selling pressure sent shares lower and for one grisly moment they crashed through the 5,800 mark.
One equity trader in London said: “It’s madness. Where’s the bottom?”
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There was widespread speculation, too, that the suddenness of the dive in markets would produce serious casualties, especially hedge funds taking leveraged bets. “They’ll be carried out, I’m absolutely certain of it,” one dealer said.
“There is a snowball effect, with margin calls putting pressure on positions and creating forced sellers,” Mark Ward, head of execution trading at Sanlam Securities UK, said. “Every order has been a sell today, so clearly people think we haven’t hit the bottom yet.”
The FTSE 100 closed down 4.7 per cent at 5,899. Germany’s DAX index dropped by 4.7 per cent, while the CAC-40 in France was down 5.4 per cent.
On Wall Street, the Dow Jones Industrial Average tumbled by 1,089 points from 16,460, within minutes of the opening bell. It tried to rally, but closed down 588 points at 15,871.
“In all likelihood, this is a buying opportunity in what is still a global economic expansion, but we are proceeding cautiously,” Jason Pride, director of investment strategy at Glenmede, the asset manager, said.