Ghost Month: Massive Sell-off in Stock Markets

Here’s how stock markets worldwide fared on August 24, 2015 — a date that will surely be remembered as a tough, sad, painful day for most stock investors.

In just one day, on August 24, 2015, billions of dollars were wiped out in stock markets worldwide — from China to the United States to the Philippines — leaving behind millions of people who got surprised and fearful at the same time.

China’s Shanghai stock exchange led the global sell-off, shedding 8.49% of the market value in just one day. The Philippine Stock Exchange (PSE) was actually the third biggest decliner yesterday, falling 6.7% trailing behind Romania’s stock markets that fell 7.95%.

In the United States, the Dow Jones had a tumultuous day, with intra-day losses swinging between 2% and 6%. By the closing bell, the Dow further extended losses from last week, closing the day down 3.57%.

In Europe, most stock markets recorded declines between 4-6%.

Asia was not spared, with India, Hong Kong and Japan stock indices falling by 5% while Southeast Asian stock markets in Vietnam, Thailand, Singapore, and Indonesia booking one-day losses of 4%.

Here’s a country-by-country comparison of the market sell-off yesterday.

Major Global Stock Markets’ 1-Day Performance (August 24, 2015)

Asian Stock Markets’ 1-Day Performance (August 24, 2015)

European Stock Markets’ 1-Day Performance (August 24, 2015)

The global market sell-off were caused by a variety of factors, but the primary reasons cited were:

1. Concerns about China’s economy

China recently announced weak manufacturing output and lower-than-expected Gross Domestic Product (GDP) growth rates, leading analysts to believe that the growth of the world’s fastest-growing economy is declining faster than expected. China alone contributes almost 15% of the world’s total economic output, thus any sign of slowdown will surely be a major cause of concern.

In addition, China is also facing problems with its local stock markets. After reaching a peak in June 2015, with millions of Chinese joining the stock market for the first time, stock prices have fallen sharply wiping out more than 30% of the stock market’s value in just 3 months.

2. Uncertainty about rate hikes in the United States

The US Federal Reserve has long hinted that benchmark interest rates will be raised soon, as the US economy starts to recover from the recession that started in the late 2000s due to the subprime mortgage crisis. Analysts are waiting this week for results of a Federal Reserve meeting that will confirm the direction of the economy. Delaying the rate hike means the Fed believes the US is still not on a solid path to recovery, further dampening consumer and market sentiment. Continuing with the rate hike as planned, meanwhile, will make US markets attractive again causing funds to be siphoned away from emerging markets.

3. Oil still at ultra-low prices 

While cheaper oil is heaven-sent to consumers, it is disastrous for some oil-producing nations and companies that were not used to this environment. Oil exporting countries such as Russia, Venezuela, and most Middle East countries now face a possible national crisis that could lead to stock market volatility, currency depreciation, deflation and potential debt default. Private companies involved in oil production and distribution, meanwhile, will have to contend with lower profits, leading them to implement vicious cost-cutting measures such as employee layoffs, freeze hiring, and a halt in expansion.

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