The saying "When the U.S. markets sneezes, other markets catch a fever," appears to be true now in reverse. With China as the world's second-largest economy, Shanghai market's fever on Monday caused colds in other major global markets.
Shanghai shares plummeted 8.5 percent on Monday, its biggest decline in eight years. On the same day, the Dow Jones industrial average slumped 127.94 points, down 0.73 percent to 17,440.59. The S&P 500 shed 12.01 points, or 0.58 percent, to 2,067.64, while the Nasdaq Composite Index dipped 48.85 points, or 0.96 percent, to 5,039.78, reports Reuters.
Outside the U.S., both the Paris and Frankfurt markets shrank over 2.5 percent, the FTSE 100 in London decreased by 1.3 percent and the MSCI index of Asia-Pacific shares outside Japan went down by 1.7 percent.
The China crisis also caused oil prices to hit four-month lows as the price of Brent crude oil settled at $53.47 a barrel, down $1.15 or 2 percent.
Following the Shanghai crash, the top securities regulator in China said that the government would continue to buy shares to stabilize the country's stock market. A rescue plan is already in place but it failed to avert the market decline.
Zhang Xiaojun, spokesman of the China Securities Regulatory Commission, belied reports that the state-backed agency, China Securities Finance Corp., withdrew support for the stock market. However, Core-Pacific Yamaichi Hong Kong head of research Castor Pang observed that the government's intervention failed to stop the market's crash, but it only delayed the decline. "An absence of late-night measures after such a big crash is unnerving investors," Bloomberg quotes Pang.
Wu Kan of Dragon Life Insurance, a fund manager based in Shanghai, notes the very weak confidence in the Chinese stock market and believes it would seek a lower level of support.
Bloomberg reports that the Chinese stock market decline continued on Tuesday with the Shanghai Composite Index down 1.9 percent to 3,655.06 at 10:43 a.m.