Worry but don’t panic, market strategists say

Associated Press

NEW YORK

There’s no reason for panic. Worry, yes, but not panic.

That was the opinion of some U.S. investment strategists after another free-fall on China’s main stock market reverberated around the globe Thursday and sent the Dow Jones average to a loss of nearly 400 points.

Stock prices in China fell so fast that for the second time in four days, circuit-breaker mechanisms kicked in and halted trading, this time after just 30 minutes.

China’s tumbling stock prices are, in themselves, nothing for investors outside the country to panic over. Because of government regulations, very few foreigners even own stocks on the Chinese markets that seized up.

But the selling was prompted by a surprise currency devaluation by the Chinese government and by worries about a slowdown in the country’s manufacturing and service sectors. Because China is the second-largest economy in the world, those problems could spell trouble around the globe.

“This is not a situation that should result in panic; it should result in caution,” said Kristina Hooper, head of investment strategies for the U.S. at Allianz Global Investors.

Even though China’s economy is still growing at a rate that would be the envy of advanced economies, it’s only about two-thirds of what it was five years ago and is expected to slow further.

A slowdown in China is seen as a threat by many investors because the country has been the main engine of global economic growth for years, particularly during the depths of the Great Recession.

U.S. and European companies have rushed to sell cars and a multitude of other products to China’s fast-growing middle class. China accounted for more than half of Apple’s revenue growth in the fiscal year that ended in September. (Apple stock fell more than 4 percent Thursday.)

Also, the communist state’s huge manufacturing sector is a major buyer of machinery and basic materials such as copper and oil, often from countries such as Brazil and Russia.

As a result, slow growth in China could hurt profits at corporations all over the world.

“We’re only seven days into 2016, and we’ve already had North Korea’s nuclear test, Saudi Arabia and Iran cutting diplomatic relations and China devalue their currency,” Hooper said. “It’s going to be a volatile, turbulent year, and investors need to be prepared for that.”