Poor Chinese economic data lead Shanghai’s massive sell-off
On Monday, January 4, 2016, China’s Shanghai Composite Index fell 7%. For the first time, it touched the new “circuit breaker” introduced by Chinese market regulators after the August 2015 market crash due to devaluation of the yuan. The China Caixin Purchasing Managers’ Index (or PMI) data also came in that day.
The manufacturing PMI data stood at 48.2 in December compared to 48.6 in November. It was far below the consensus expectation. According to a Reuters poll, it was expected to be 49.0. Levels below 50 indicate contraction in manufacturing activity.
Geopolitical tension between Iran and Saudi Arabia
Growing tensions in the Middle East may raise concerns over possible oil supply disruptions. Crude oil prices rose in Monday’s trading session but closed a little lower due to global sell-off pressures. The United States Oil ETF (USO) fell marginally on January 4, 2016.
Over the weekend, after Saudi Arabia executed 47 people, Iran warned Saudi Arabia that it would face immediate consequences for the executions. Saudi Arabia cut diplomatic ties with Iran and gave 48 hours for Iranian diplomats to leave the country.
FEZ and EWJ fell sharply
The SPDR Euro STOXX 50 ETF (FEZ), the iShares MSCI Eurozone ETF (EZU), and the iShares MSCI Japan ETF (EWJ) fell 2.1%, 1.6%, and 1.6%, respectively, on Monday, January 4, 2016. This followed the Chinese market sell-off. Major holdings of FEZ such as Volkswagen (VLKAY), Total (TOT), and Daimler (DDAIF) fell 6.6%, 1.7%, and 4.2%, respectively, that day. The SPDR S&P 500 ETF (SPY) fell 1.4% on the same day on the back of the global sell-off.
Next, we’ll see how FEZ’s various industries performed on January 4, 2016.