Bounce back from China’s Black Monday

Bounce back from China’s Black Monday

As a reaction to the biggest devaluation of the yuan, the Chinese market slide sent reverberations across the world this week as European stock markets tumbled. However, the FTSE 100 Index has now recovered and returned to above the 6,000 mark with a 1.9% surge.

After £74 billion was wiped off the FTSE 100 on Monday, the surge meant that the UK’s top 100 companies rose by 115 points and £29 billion was added to their value. A drop like that seen last weekend has not been witnessed since September 2011, and was unfortunately a new chapter to recent news of the devaluation of the yuan, alongside low commodity prices and the imminent US interest rate rise.

BT quoted market analyst Tony Cross at Trustnet Direct as he believes that that state of the stock market on Tuesday has shown promise, but there is concern that this is a one off situation. “However there’s that overarching concern that historically market movements like we saw on Friday and Monday are rarely isolated events so the issues will be that the choppy market conditions could well prevail for some time yet,” Cross said.

At the start of the week, the Shanghai Composite lost more than 8% and the after effects such as the Dow dropping more than 1,000 points in the first few minutes on Monday and meant that investors started to panic. On the other hand, the pan-European index Stoxx 50, increased by 3.2% at the start of trading after their biggest loss in September 2008.

Analyst at Rabobank Piotr Matys highlighted that this was one of the worst trading days in financial market history. “The 8.5% fall in China’s stocks triggered a domino effect as most of European indexes ended Monday’s session with losses exceeding 5%,” Matys was quoted in the International Business Times.

Interestingly, after months of Eurozone confusion and turmoil, the Euro and British pound traded high against the US Dollar.