Stocks tumbled across Europe on Monday, following the same path taken by Asian markets, as fears of a Chinese economic slowdown pushed Germany’s DAX Index down for a seventh trading day.
The DAX fell below the psychologically important mark of 10,000, hitting its lowest point in seven months. The benchmark index, which includes exporters such as Volkswagen and BMW, Siemens and chemicals maker Lanxess, fell as much as 3 percent in early morning trading and extended losses during the afternoon. The index was down 5.5 percent at 15:37 in Berlin, trading at a value of 9.569,89.
The index of Germany's 30 biggest listed companies had already fallen 8 percent last week as fears about China's growth prospects gathered steam.
“When Chinese economic growth is slowing, it has an impact,” said Jörg Krämer, chief economist of Commerzbank in Frankfurt.
“In addition, the Chinese have liberalized their currency, which has made the economic problems more visible, also to investors. These are now responding rapidly,” Mr. Krämer told Handelsblatt Global Edition.
A slowdown of the Chinese economy will ... trigger a considerable wave and could be seen as a harbinger of other bad news from other regions. Stan Beckers, Head of NN Investment Partners
The Chinese central bank's devaluation of the yuan currency two weeks ago triggered a drop of stock markets globally and exacerbated a slump of shares listed in Shanghai and Hong Kong, where the main indices tumbled a further 8.5 and 5.8 percent respectively on Monday.
The U.S. Dow Jones and Nasdaq indices both fell more than 3 percent on Friday and continued their slide on Monday, dropping between 5 and 6 percent at market open. The French blue chip index CAC40 and British FTSE100 lost between 5 and 7 percent.
“China is regarded as an important factor for the state of the global economy," the head of Dutch investment firm NN Investment Partners, Stan Beckers, told Handelsblatt. "A slowdown of the Chinese economy will therefore trigger a considerable wave and could be seen as a harbinger of more bad news from other regions.”
Mr. Krämer of Commerzbank said investors had also become more aware of economic problems in Russia, Brazil and Turkey. German exports to Russia fell 31 percent in the first half of 2015, Reuters reported on Monday, citing data from the German statistics agency.
Daimler, the producer of Mercedes luxury cars and trucks, is planning to cut 1,500 jobs in Brazil due to a strong contraction of the Brazilian truck market, a Daimler spokesman told German news agency DPA.
Despite the market turmoil, the euro exchange rate versus the U.S. dollar rose almost 2 percent on Monday, reaching its highest point since February at $1.1587 per euro by mid-afternoon in Berlin. Analysts said this was the result of comments from the U.S. Federal Reserve suggesting the central bank was delaying a decision on when to raise interest rates, which have been at rock-bottom since the 2008 financial crisis.
“The likelihood of an interest rate increase in the United States has decreased, helping push up the euro," said Lothar Hessler, a German economist at HSBC Trinkaus & Burkhardt in Düsseldorf.
Economists had previously expected an interest rate increase by the U.S. central bank in September, but that might now be delayed, Mr. Hessler told Handelsblatt Global Edition. An expected rate hike in September had led to a drop of the euro versus the dollar in the past few months, but this trend was now being reversed, he said.
The crisis in China, coupled with delayed action by the U.S. Fed, could have a major impact on German exporters, some of whom sell more than 10 percent of their products in China. German businesses had previously benefited from a weaker euro because it made their products cheaper outside the euro zone.
“The euro has risen versus the Chinese currency; it has risen about 5 percent against the dollar," Mr. Hessler said. "German firms are now seeing a positive factor disappear.”
No sector has been spared as all 30 German stocks were down in Frankfurt. Shares of E.ON and RWE, Germany’s biggest utilities, Heidelberg Cement and Commerzbank were down more than 5 percent.
“When there is talk of a macroeconomic trend, such as the worries about China, usually indices fall across the board,” said Andreas Hurkamp, equity strategist at Commerzbank in Frankfurt.
RWE was the biggest decliner, falling 6.6 percent to €13.54, after the utility confirmed it was replacing its two top managers in Britain. Handelsblatt reported on the management shake-up on Thursday due to problems at the British subsidiary npower.
Mr. Hurkamp said he expected markets to remain volatile for the remainder of the July-September quarter, but the situation could improve in the last three months of this year, when China’s monetary policy should stabilize and better economic data should help remove volatility. As an example he cited the last major Asian economic crisis in the late 1990s.
“We saw in 1997-’98 that Asian markets fell and the DAX also came massively under pressure. But back then there was a recovery in the fourth quarter and we also expect that this time,” Mr. Hurkamp told Handelsblatt Global Edition.
Germany's economy has so far been powering along this year despite the concerns from abroad. Europe's largest economy grew 0.4 percent in the second quarter. Even if the country's exporters are expected to take a hit in the coming months, economist Mr. Hessler of HSBC Trinkaus Burkhardt said he saw no reason to adjust his growth forecast for the German economy. He still forecasts annual growth of 1.5 percent.
Mr. Krämer of Commerzbank also did not expect a major contagion effect similar to the Asian crisis in 1997-’98.
“Many banks have burned their fingers the last few years, and have since changed operations. It will not turn into a systemic crisis. The DAX will find its through in the next few weeks,” Mr. Krämer said.
Gilbert Kreijger is an editor at Handelsblatt Global Edition in Berlin, focusing on companies and markets. Ingo Narat, an editor at Handelsblatt, contributed to this article. To contact the author: [email protected]