HONG KONG (CNNMoney) — World stocks and oil prices plunged Monday as a global sell off accelerated on worries about the health of China’s huge economy.
China stocks crashed and all Asian markets suffered major losses. Europe’s major indexes opened about 3% down before trimming those losses slightly.
Oil slumped 3.5% to a new six-year low of just over $39 a barrel.
China’s benchmark Shanghai Composite index declined 8.5%, wiping out all gains made this year. Many companies, including some large state-owned firms, fell by the maximum daily limit of 10%. The index is now down 38% since its June peak.
The smaller Shenzhen Composite lost 7.7%.
In Japan, the Nikkei closed down 4.6%. Germany’s DAX shed 2.7%, as did the FTSE 100 in London. And Wall Street was poised for another sharp drop on Monday.
The losses went beyond stocks and commodities. Asian currencies were trading lower against the U.S. dollar, and Russia’s ruble fell by nearly 3%.
Three factors continue to weigh on markets:
1. Concerns that China’s economy is slowing faster than analysts had anticipated.
2. Uncertainty over when the U.S. Federal Reserve will raise its benchmark interest rate.
3. The effect of exceedingly cheap oil, which slams exporting countries as well as drilling companies.
The Dow plummeted by more than 1,000 points last week — its worst five-day trading period since 2011. The Shanghai Composite fell 11.5% over the same period.
Analysts at UBS said that central banks stand ready to provide support if sentiment worsens.
“Investors should brace for further volatility,” they wrote in a research note. “But we expect this bout of risk aversion to pass, with equities in developed markets resuming their upward trend.”
Concerns mounted after a key gauge of China’s manufacturing activity tumbled to its lowest level in 77 months. This week, investors will get a closer look at Chinese imports, vital for many countries that rely on China as a trade partner.
Many investors and economists had bet on a Fed rate hike in September, something it hasn’t done since 2006. But in the Fed’s minutes published last week, committee members sent the market mixed messages.
A rate hike would increase borrowing costs — interest on loans — for companies in emerging markets. It would also make American debt more attractive to investors, which means they could dump emerging market debt.
And then there’s oil. A year ago, a barrel of oil cost about $100 — now it’s trading near $40.
Oil is a lifeline of economic growth for many developing countries, which are also seeing their currencies lose value because of their economic exposure to China.