It hasn’t been such a happy new year for global stock markets, which saw trading get off to a negative start after the New Year’s Day holiday.
The MSCI Asia Pacific Index, which excludes Japan, fell 1.9% on the first day of 2019 trading – its worst start to the year since 2016, Bloomberg’s Eric Lam reports.
Individual exchanges across the region were in similar record-setting mood. Hong Kong’s Hang Seng Index saw its biggest drop in more than two months, falling 2.8%, and the Shanghai-Shenzhen CSI 300 Index fell 1.4% to its lowest close since March 2016. In Australia, the S&P/ASX 200 dropped 1.6% and exchanges in Taiwan and Korea fell by at least 1.5%.
Commentators are blaming China’s December 2018 manufacturing data, which shows a slowdown in factory activity across the nation. The Caixin Media and HIS Markit PMI fell to 49.7 from 50.2 – its lowest reading since May 2017, Lam points out.
He cites a note to clients from CMC Markets analyst Margaret Yang: “China’s manufacturing PMI is falling at a faster rate than economists’ forecasts, suggesting [the] global economic slowdown and trade war is hurting the country’s manufacturing activities.”
The same factors are having a knock-on effect on neighbouring economies, whose supply chains are tightly interwoven with China’s. Lam says other countries have also reported deteriorating factory conditions, including Taiwan, Malaysia, Vietnam, the Philippines and South Korea.
Europe takes a tumble
Europe is also feeling the knock-on effects. The FTSE 100 Index fell 122 points to 6,605.83 early in its first session of 2019, Giles Gwinnett of proactiveinvestors.co.uk reports. He also identifies China’s factory data as the ultimate trigger for the fall.
Natural resources stocks, closely tied to China’s economic growth, were among those to take a tumble in early FTSE 100 trading. Mining groups BHP and Rio Tinto fell 3% and 4% respectively, while oil companies BP and Royal Dutch Shell lost around 1%, Gwinnett reports.
He quotes markets.com analyst Neil Wilson, who sees at least one silver lining to the new year trading cloud: “On the whole, there is little to cheer about, unless you’re viewing this as a chance to snap up some bargains.
“Following the worst year in a decade for global equities, it’s little surprise to see a tentative start to 2019 and this does create opportunities, but investors should be prepared for more volatility ahead.”
The FTSE 100 rallied to close six points up on its first day of 2019 trading, giving investors some small comfort.
US closes worst year in a decade
The gloomy start to 2019 comes as US stocks closed their worst year in 2018 since the great recession of 2008, Yahoo Finance’s Emily McCormick reports.
At the close of trading on 31 December, all three of the US’s main indices – the S&P 500, the Dow and the Nasdaq – were down 6.2%, 5.6% and 3.9% respectively. The last time that happened was in 2008, when all three indices closed the year on double-digit declines.
Analysts attributed the poor showing in 2018 to several factors, including the US trade war with China, fears about the direction of the Federal Reserve’s monetary policy, a drop in oil prices and concerns about a domestic and global slowdown in economic growth.
Safe haven assets, including gold and the yen, have benefited from the stock markets’ woes. Gold hit a high of US$1,286.50 per ounce at year-end and the yen was up 2.5% for the year at 109.88 per dollar, McCormick reports.
Some analysts are hoping 2019 brings better news. McCormick cites John Stoltzfus, chief investment strategist for Oppenheimer, who predicts an 18% uptick on the S&P 500 through 2019 to close at 2,960. She quotes Stoltzfus as saying that “barring an appearance of a ‘black swan’ event, or the shock of a bolt from the blue, the worst of the declines experienced by stocks in 2018 are behind us”.
Others are less optimistic. Analysts from Well Fargo Securities and Credit Suisse have revised their 2019 year-end targets for the S&P 500 downwards.
If anyone needed a dose of reality to help them get back into the swing of things after the Christmas slowdown, this is certainly it. CMC Markets’ Margaret Yang probably summed up current sentiment most accurately when she told Bloomberg TV that it’s “going to be a challenging year for everybody, not just China, but also globally”.
Yahoo Finance article