China leads stock market plunge

Ryan Bembridge

January 4, 2016

China is leading a stock market downturn which is reverberating around world.

Shares in China fell by 7% today while the Standard & Poor’s 500 Index was down 2% – making this potentially the worst start to the New Year in the FTSE 100’s 31-year history.

Ray Boulger, senior technical manager of John Charcol, said today’s events makes the prospect of a 2016 base rate rise even more unlikely.

He said: “The collapse in the Chinese stock market could have reverberations around the world, making it likely the UK bank rate will remain lower for longer – it already seemed unlikely the first rise would happen this year.

“If the economic situation is seen as weaker there is less of a need to raise interest rates, while if equity prices fall people will tend to move into gilts and other government stocks.”

According to Nigel Green, chief executive and founder of financial consultancy organisation deVere Group, this spells the beginning of a volatile 2016.

He said: “Volatility is likely to rip through financial markets in the first half of 2016.  Today’s turbulence is only the beginning.

“There’s a cocktail of uncertainty, with the main ingredients including China’s economic woes, higher interest rates in the U.S., historically low oil prices, Britain’s referendum on exiting the EU, and increasing tensions in the Middle East.”

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