UBS Global
Chief Investment Officer Mark Haefele said in a note that investors should brace for further volatility in the equity markets.
Market players have been “on high alert” over growth in China since
Beijing devalued its currency earlier this month.
“But we expect this bout of risk aversion to pass, with equities in developed markets resuming their upward trend.”
Chinese stocks wiped out all the gains earned in 2015 overnight, as Beijing failed to take expected measures over the weekend to buoy the financial system. The Shanghai Composite tumbled 8.5% and in Hong Kong, the Hang Seng Index slipped 4.8%.
In Frankfurt, the closely watched DAX 30 dipped 2.8% to 9,855, marking
the first time since January it’s been below 10,000.
In spite of the lingering weakness in some emerging markets, especially
China, Brazil, and Russia, drivers in the U.S. and Europe have
not worsened significantly and analysts at UBS expect growth to remain on track
in these economically larger regions, pointed Haefele.
“We also believe central banks stand ready to provide support if sentiment worsens further.”
UBS trimmed its 2015 and 2016 growth forecasts for eurozone GDP after growth in the first two quarters of this year was poorer than anticipated.
Nevertheless, UBS remains constructive on the eurozone. The bank now expects 2015 growth of 1.4% compared with an earlier projection of 1.6%. For 2016, it foresees GDP expansion of 1.9% versus its previous outlook of 2%.
U.S. stock futures fell Monday after Friday’s selloff left the Dow Jones Industrial Average down 531 points and in correction.
Stoxx Europe 600 dropped 2.9% to 350.85, with no sectors trading
higher. Only Spanish
renewable-energy Abengoa SA climbed 5.1% and Swedish broadcaster Modern
Times Group AB added 0.9%.
MTG said Monday it’s cutting about 300 positions as part of a restructuring program.
All major European stock indices were in the red territory, pushing the Stoxx
600 further into a correction as it is now down 15% from its all-time
high, hit on April 15.
Last week, the index recorded its worst week in four years,
with declines following Chinese factory activity dropping to
a six-and-a-half year low in August, despite the authorities' efforts to
stimulate growth.
Elsewhere on Monday, London’s FTSE 100 dropped 2.3% to 6,045.13 and was down 8% for the year.
France’s CAC 30 shed 2.3% to 4,523.34, and Spain’s IBEX 35 was down 2.3% at 10,031.30.
Italy’s FTSE MIB gave up 2.3% to 21,253.16.
