China drop drives global shares to new year rout

Financial markets are starting 2016 in turmoil as a rout in China rekindled concern slowing growth there will spread, while tension between Saudi Arabia and Iran added to geopolitical unease.

Global equities crumbled toward the worst opening to a year in at least three decades.

The Dow Jones Industrial Average sank more than 400 points as data showed US manufacturing sank the fastest in six years.

Emerging markets slid the most since August as slowing manufacturing triggered a sell-off that halted Shanghai trading.

Bonds jumped and the yen rallied on demand for haven assets.

“We’ve had a number of negatives out there in the US throughout most of last year as investors battled to have a flat year and China is a reminder there aren’t many things to be bullish about going into this year,” Michael O’Rourke, chief market strategist at Jones Trading Institutional Services in Connecticut, said.

The slump in developing nations harks back to financial turmoil in August sparked by China’s devaluation of the yuan.

It shows the pace of growth in the world’s second-largest economy will remain key for markets in 2016 after a slowdown last year dragged emerging markets lower and fuelled a slump in commodities at the same time the US Federal Reserve pulled stimulus.

While rising tension in the Middle East is boosting oil prices, the biggest meltdown in relations in almost three decades raises the spectre of region-wide turmoil.

The MSCI all-country world index fell 2.6% at one stage, topping its slide of 1.5% at the start of 2001.

The Standard & Poor’s 500 Index plunged 2.3%, the most since September 28, after the gauge ended 2015 down 0.7% lower.

The S&P 500’s decline has it on track for the third-worst start to a year going back to 1927.

The biggest first-day rout was in 1932 when the index sank 6.9%, followed by a 2.8% slide during the dot com demise in 2001.

In those two instances, the index averaged a full-year loss of 14%. Expand the data to include the five worst inaugural days, and the average full-year result is a gain of 5.1%.

S&P Dow Jones indices data however indicate the first day of trading has no predictive power for the rest of the year.