Global Stocks Plunge After China Halts Trading
KELLY MCEVERS, HOST:
2016 has gotten off to a rough start for stock markets around the world. The Dow Jones Industrial Average closed down again today, and we can trace the problems to China where there has been another overnight selloff of Chinese stocks and a move by the central bank to devalue the currency. We'll have more on what's happening inside China's economy in a moment. But first, NPR's Yuki Noguchi looks at whether American investors should be worried.
YUKI NOGUCHI, BYLINE: China's markets were open on Thursday for about a half an hour before a dramatic selloff suspended trading for the second time this week. There's very little foreign money invested in Chinese stock markets, yet markets around the world are reacting. Mark Hamrick, senior economic analyst for bankrate.com, says part of the worry is lack of visibility into China's economy and monetary policy.
MARK HAMRICK: Well, it seems as if what we don't know about what is happening inside China is greater than what we actually know. And then there's the question of what China's leaders want to do or intend or are able to do, and those are all big questions.
NOGUCHI: This is potentially more than a question of stock prices. Hamrick says there's a lot at stake for the U.S. energy and manufacturing sectors.
HAMRICK: You also see that markets and commodities prices seem to be caught in a vicious cycle as China allows its currency to weaken. Commodities prices continue to sink. We see that, for example, in the price of crude oil in the United States. And then the dollar strengthens, and that has a dampening impact on global trade.
NOGUCHI: That view was backed up by another China economic policy expert, the aptly named David Dollar.
DAVID DOLLAR: All the news for the dollar's been positive. You know, I feel like my namesake is looking pretty good at the moment.
NOGUCHI: However, a strong dollar, he says, is not necessarily a good thing for the U.S. economy. A more expensive currency translates into less demand for U.S. products overseas. Dollar, who is with the Brookings Institution, says it's not the size of the Chinese market's drop that's catching investors' attention.
DOLLAR: Investors around the world are very nervous that there'll be a large devaluation of the Chinese currency, you know, which would be quite disruptive.
NOGUCHI: On the other hand, David Dollar notes the Chinese economy may not be in such bad shape. Its growth rate is slowing, but foreign demand for Chinese goods is higher than ever.
DOLLAR: You know, they had their largest trade surplus in history last year, the largest in human history - $600 billion trade surplus. So they obviously don't have any problem with competitiveness or on the trade side.
NOGUCHI: Ann Lee says the investors' reaction has been overblown. Lee is an author and New York University finance and economics professor. She says China had already announced plans to reform its currency by pegging it to a group of currencies, not just the dollar, so the weakening shouldn't have been a surprise.
ANN LEE: I think that China's already telegraphed their intentions.
NOGUCHI: Also, neighboring countries' currencies have recently lost value without causing the same panic.
LEE: There's such an overreaction to China's move in the currency given that, you know, South Korean currency and Japanese currency fell far more. And those are not small economies (laughter).
NOGUCHI: She says it might take a while for the markets and the currency question to subside, but she believes they will without leaving lasting marks.
LEE: Volatility may seem a little scary right now, and I think it's very oversold. Whenever things get oversold, then people will tend to come back in and start bargain hunting.
NOGUCHI: Investors looking for a bargain may get their chance. Chinese regulators now say they will not automatically halt trading if there's another selloff. Yuki Noguchi, NPR News, Washington. Transcript provided by NPR, Copyright NPR.