March has brought worries for investors over stock prices in markets around the world falling, after a buoyant start to the year. US and European indexes both experienced losses during March – with the Stoxx Europe 600 dropping by 0.3 percent at one point in the month – and there are fears that the US may go into recession. However, what is causing most concern among those who trade in stocks is the fall in the stock and share prices in China.
The month brought almost constant bad stock market news, leading to real fears of a global economic slowdown. By the end of the month, Treasury yields in the US had fallen to their lowest level in 15 months, while bond yields in Germany had dropped even further below zero and the price of the dollar in New Zealand crashed following news that its central bank was considering cutting interest rates. In Europe, the President of the European Central Bank, Mario Draghi, indicated that boosting interest rates may be postponed and that it may have to take steps to relieve the effects of negative interest rates and try to stave off growth slowdown.
The fall in stock prices has extended to China, with the 20th March bringing news of a 0.5 percent drop in prices on the Hang Seng Index and a slight fall in prices on the Shanghai Stock Exchange. There was also a fall in the price of shares in China, with the CSI300 Index showing a drop of 1.13 percent, while the Shanghai Composite Index fell 1.51 percent to 2,997.10 points. During the month, Bank of America Merrill Lynch published a survey of over 200 global investors and money managers which revealed that 30 percent of them considered China’s economic slump to be the single biggest risk to their investments. The economy in China leads the world economic rankings at the moment, making its performance crucial to that of stock markets in other countries. Early April did bring some more encouraging news for investors however, as manufacturing activity in China showed the first signs of growth since the start of the year.
Much of the anxiety and uncertainty in the global stock markets is driven by the trade war between China and the US. The prospect of this ending earlier in the year fuelled big rises in stock prices globally, and several analysts cited this as the primary factor. After performing badly during 2018, share prices on the Chinese Shanghai Composite Index alone had risen 25 percent during this year, before falling in March when no agreement was reached. David Lipton of the IMF has stated that the failure to end this trade dispute between the countries poses a greater threat to the stability of the global economy than anything else. Unsurprisingly the Merrill Lynch survey found that 19 percent of investors see it as the other big worry alongside China’s overall performance.
The Chinese economy is crucial to those of other countries, and both are being impacted by the trade war with the US. A satisfactory resolution to this is urgently needed to stop further falls in stock prices in China, which will have negative consequences for markets in the rest of the world.