News

Asia stock "bloodbath" triggers concerns over next financial crisis

3 min read

24 August 2015

European stock markets have posted heavy falls after China’s stock market suffered its biggest plunge since 2007. Experts have started to question whether this could be the beginning of the next financial crisis.

The world is not ready for the next financial crisis, which could hit us sooner than most people realise, according to David Taylor from the African Institute of Financial Markets and Risk Management at the University of Cape Town.

“It is not a question of whether there will be another financial crisis like we saw in 2008 following the US sub-prime mortgage debacle,” he said. “The question is when and where.”

Taylor suggested that the next economic bust could happen due to the slowdown of China’s high growth rate in recent years. 

Read more about opportunities in China:

Asian stocks are now all in the red, which has allegedly been described by local media as a “bloodbath”

The Shanghai composite has fallen by as much as nine per cent – its biggest slump since 2007 – with more than $5tn (£3.17tn) being wiped off global stocks since China devalued its currency on 11 August.

Jim Reid, an analyst at Deutsche Bank, said the market sell-off that has gripped the world had originally been driven by expectations that the US Federal Reserve would raise interest rates.

However, “China’s confrontational move of devaluing it currency and the subsequent knock-on through emerging markets, have accelerated us towards something more serious,” he said. “We always thought something would get in the way of the Fed raising rates in September and we’re perhaps seeing this now.”

Takako Masai, the head of research at Shinsei Bank in Tokyo, said: “Markets are panicking. Things are starting to look like the Asian financial crisis in the late 1990s. Speculators are selling assets that seem the most vulnerable.”

Chris Towner, director of FX advisory services at foreign currency firm HiFX, echoed the sentiment by explaining that China’s “Black Monday” was spreading alarm worldwide.

“Risk aversion is back in the financial markets,” he said. “A combination of threats of tightening monetary policy in the US and UK with China slowing has created nervousness and this nervousness is now spreading to panic.”

This has led to the FTSE 100 plunging as low as 5,995 points for the first time since January 2013, wiping more than £60bn off the index of leading UK shares. The Guardian suggested that “if it finishes there, then more than £50bn would have been wiped off the collective value of the 100 companies on the index.”

European stocks face the biggest fall since 2009, according to Reuters data, with more than €400bn (£296.74bn) having been wiped off the value of Europe’s 300 largest companies.