26th August 2015
European stock markets have fallen again on fears of a slowdown in China.
The FTSE 100 was down by more than 1% this morning, as mining stocks fared particularly badly.
In the US, the Dow Jones index climbed a little before falling back.
A rate cut by the Chinese central bank did not stop a further decline in Shanghai’s Composite index, which dropped by 1.27% to 2,927.29. Overall it has fallen by about 16% over the past week.
Craig Botham, emerging markets economist at Schroders, says: “The People’s Bank of China (PBoC) moved to cut both the benchmark interest rate and reserve requirement ratio (RRR). The stimulus measures should help market sentiment, but we do not expect a resurgent China as a result.
“The cuts, of 25 basis point (bps) and 50bps respectively, follow a disastrous few days on the equity markets, but we do not believe the PBoC wishes to reflate that particular bubble. However, the magnitude of the slump in the stockmarket is likely to have a negative impact on sentiment, especially given a weak economic environment (we saw a much softer-than-expected manufacturing Purchasing Manager’s Index (PMI) print last week).”
Botham adds: “Will this stimulus drive a growth rebound? We are doubtful. As mentioned, the RRR cut likely just restores lost liquidity. The rate cut, while helpful, probably just forestalls defaults, rather than encouraging investment in an economy beset by deflation, overcapacity, and high debt levels.”