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China’s second seven percent slump spooks markets

China’s stock market slumped by 7% for the second time this week, sending all main European indices down sharply as well.

The so-called ‘circuit breaker’ kicked in again in China with trading suspended after steep falls during the minutes after the opening bell.

Markets in Europe followed suit in a similar way to what was seen on Monday. The FTSE 100 had dropped 2.7% to 5910 by late morning, the DAX was down 3.2% to 9890 and France’s CAC 40 had fallen 2.6% to 4365.

Fears of a ‘hard landing’ for China and its knock-on effects were the main driver of the falls.

“For the second time this week we’ve seen another sharp, circa 7% decline, in Chinese domestic stock markets, once again forcing a suspension of trading under new “circuit breaker” mechanisms aimed to limit volatility,” said Tilney Bestinvest managing director Jason Hollands. “This is likely to lead to further contagion on developed market exchanges, as it reinforces fears about the health of China and the wider ramifications for the global economy.”

“In our view a Chinese hard landing remains a serious possibility though we expect increasingly desperate measures to be taken to delay what may turn out to be inevitable,” Hollands warned. “These include interventions and controls on the stock market as well as the property market, interest rate cuts and most concerning of all for the global economy, further devaluation of China’s currency, the Yuan.”

Head of investment research at Hargreaves Lansdown Mark Dampier had similar worries and said the circuit breaker is part of the problem.

“Clearly the circuit breaker is having the opposite affect to what is intended and is making things worse, he said. “It also stops the market having any chance of bouncing. Had it been introduced during 2015, it would have been triggered 20 times.” 

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