Becoming almost a habit, the ongoing debacle that is the Chinese economy showed on Monday just how much impact it can have on other economies, as global markets tumbled after the Chinese stock market dropped almost 9 percent on Monday.
With China one of the first markets to open and many traders around the world taking their cue from Asia, particularly on a Monday, the drop first sent the key European stock markets into a nose dive, dropping over 5 percent and a few hours later the Dow Jones plunged over 1,000 points at its open.
The effect was not just limited to the Dow Jones, NASDAQ and the S&P 500 as commodity markets, already severely battered this year took the news badly as well, knocking billions off the value of everyday items as traders panicked.
One of the many indicators that experienced traders keep a close eye on is the Chicago Board of Exchange Volatility Index that measures the price fluctuations of U.S. Equities. As a result of the turmoil on Monday it shot up above 50 for the first time in six years before calming down near the close at around 30.
While most key markets in the U.S came to their senses by the end of the day the Dow Jones still ended up losing 3.6 percent of its value and the S&P 500 was down 11 percent from its record high in May. This also has a significant impact for traders as holding a position overnight in this kind of market is potentially financial suicide.
Grab the Bargains
The winners from Monday’s shakeup were inevitably the bargain hunters, who got a great opportunity to scoop up stocks and unrealistically low prices and were one of the driving forces in rallying the markets from their sudden fall.
With Monday’s trading exceeding 14 billion shares, double the monthly daily average, it certainly kept traders busy all day and the biggest winners were most likely the brokers gaining commission every one of those trades. Even so, this kind of economic uncertainty is unsustainable, and either China needs to get its house in order, or the rest of the world needs to take its hiccups more in stride and less in panic.