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China Is Sneezing Hard, Infecting Global Markets

Posted January 7th, 2016 at 4:53 pm (UTC-4)
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It’s a terrible start of the year for world financial markets. All of the major U.S. stock indexes dropped for the fourth straight day, losing about 5% of value since the start of the year. It was not unexpected. Twice this week, Beijing halted trading on the Chinese stock market after steep sell-offs. Just 29 minutes after opening Thursday, China’s market plunged seven percent. Europe and the United States braced themselves for the aftershocks. The government has been trying to address China’s trend of dramatically slower growth with policy tweaks – this week, by devaluing the yuan in a controlled manner. But the psychological calculations that drive traders to dump stock are not always predictable. Some economists say not to worry: this is to be expected and it is nowhere as bad as China’s sell off last summer. But the fact remains that when China sneezes, the rest of the world catches a cold. For global markets, 2016 has gotten off to a rocky start.