Stocks take a dive on China growth fears

NEW YORK – Wall Street slumped more than 2 percent on Tuesday, pushing all three major U.S. indexes into losses for the year after weak data from China added to fears that a slowdown in the world’s second-largest economy will constrain global growth.

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The sell off was broad. All 10 major S&P sectors were more than 1.5 percent lower while all 30 Dow components were down at least 1.2 percent.

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“It’s general risk aversion manifesting itself after a really bad August,” said Mohannad Aama, managing director, Beam Capital Management LLC in New York. “The continued uncertainty about China is definitely adding to worries.”

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China’s manufacturing sector shrank at its fastest pace in three years in August. Other data showed the pace of growth in the U.S. manufacturing sector slowed in August to its weakest in over two years.

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Adding to the nervousness, International Monetary Fund head Christine Lagarde said global economic growth was now likely to be weaker than had been expected just a few months ago.

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The weak data pushed oil prices down more than 7 percent, ending three days of gains, and also reduced some investors’ expectations that the Federal Reserve would raise interest rates this month.

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The S&P energy index .SPNY declined 2.6 percent, with Exxon down 3.6 percent.

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The financial index .SPSY fell 3.16 percent, with Citigroup falling 4.47 percent.

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The CBOE Volatility index .VIX, known as Wall Street’s “fear gauge”, was up 11.78 percent at 31.78, above its long-term average of 20. The index had spiked to 53.29 last Monday.

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“We haven’t see this kind of volatility in a while. It reminds me of the one we saw during the 2008-2009 crisis,” said Art Hogan, chief market strategist at Wunderlich Securities.

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“But at some time the buyers will come.”

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At 2:07 pm, the Dow Jones industrial average was down 2.4 percent at 16,130.91, while the S&P 500 was 2.41 percent lower at 1,924.69. The Nasdaq Composite fell 2.21 percent to 4,671.00.

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Up to Monday’s close, the S&P 500 had fallen 7.6 percent from its May high as the prospect of slowing global growth and an impending rate hike helped curtail a robust bull-run that saw it gain over 200 percent from the depths of the financial crisis in 2009.

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Over the weekend, Fed Vice Chairman Stanley Fischer’s comments appeared to indicate a rate hike in September was still in play despite the recent market volatility.

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Netflix fell 8.5 percent after Variety reported that Apple was looking to move into the original programing business. Apple fell 2.4 percent.

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Declining issues outnumbered advancing ones on the NYSE by 2,592 to 432. On the Nasdaq, 2,210 issues fell and 601 advanced.

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The S&P 500 index showed no new 52-week highs and 11 new lows, while the Nasdaq recorded 12 new highs and 41 new lows.

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The renewed bout of Chinese jitters, together with disappointing US data, sent the JSE all share sharply down on the first trading day of spring.

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In a near repeat of early last week’s sharp retraction, the JSE all share closed nearly 3% down in broad-based selling, with resources and banks faring worst. Even the gold index turned sharply negative after trading in positive territory during the day.

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Following in the footsteps of tumbling European markets, the Dow Jones was more than 2% lower at the JSE’s close. The FTSE 100 was 3.14% weaker and the CAC 40 had dropped 2.81%. The German DAX had shed 2.7%.

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Markets were spooked after the US ISM manufacturing index slid to a two-year low in August, following sharply lower Chinese purchasing managers index (PMI) data, released earlier in the day, indicating its lowest reading in three years.

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This caused severe weakness in Asian markets with the Nikkei losing 3.84% and the Hang Seng shedding 2.24%. The Shanghai Composite closed 1.23% down amid the clampdown by Chinese authorities on traders spreading market “rumours”.

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UK manufacturing data also came in lower than expected and eurozone manufacturing growth slowed in August.

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Negative sentiment worsened after International Monetary Fund head Christine Lagarde warned of possible negative spillover effects to emerging markets on the expected contraction in Chinese gross domestic product growth.

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At 5pm the all share was down 2.92% to 48,515.10 and the blue-chip top 40 had dropped 3.09%. Resources led the losses, closing 4.66% lower, with banks losing 3.43%. Platinums shed 3.37% and financials lost 3.19%. Industrials were 2.55% weaker and gold closed 2.24% lower.

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Stanlib retail investment director Paul Hansen said concerns about the start of interest rate hikes in the US remained.

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“But the bigger issue is worry about China’s growth, because it has contributed nearly 40% of world growth in the past five or so years.”

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He said August was a bad month for markets with the MSCI World Index now where it was in October last year, having lost 10% in August.

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Some headlines on Chinese data have often been “hysterical”, he said. “Data from China have actually been more balanced.”

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Mr Hansen said it was expected that economic data from China would start improving, helped by the additional policy stimulus.

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Among individual shares on the JSE Glencore led resources lower, plummeting 10.33% to a record low R27.53. Anglo American closed 5.18% softer at R139.24.

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Market heavyweight Naspers was 5.19% off at R1,629.78.

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Among platinum stock Lonmin slumped 6.68% to R6.71.

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Banking stocks were major casualties on the day as Capitec shed 5.19% to R457.77, while FirstRand was 4.35% lower at R50.61.

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Retailers came under pressure after Mr Price delivered disappointing results. Total sales grew by 9% in the first 21 weeks of its financial year. It ended the day 13.25% lower at R207.01.

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The Foschini Group was 6.56% weaker at R140.07 after total sales for the first five months of this financial year grew by 33.1%, including sales from acquisition Phase Eight.

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Property stocks were lower, with the index losing 2.02% on the day, which wasn’t all that bad considering the market’s overall losses. Hyprop was 2.42% lower at R121 after reporting full-year 2015 dividend growth of 15%, but expecting growth of 10% for 2016.

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Brait was 6.27% down at R136.08 on profit-taking.

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Cashbuild was 4.18% off at R299.73. It reported a 33% jump in full-year net profit to R363.37m on the day.

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Grand Parade Investments closed 1.09% lower at R5.45 after reporting losses at Burger King amounted to R55m as the division was still in an investment phase. – Reuters and Business Day

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