Black August

Following the panic in the international stock markets created by a slowdown of the Chinese economy, the Karachi Stock Exchange (KSE-100) plummeted by 1,300 points near the close of trading on Monday, down around four percent on a single day. Analysts have blamed the panicking small investors and the exit of foreign investors from the market. Some suggest foreign investors made profits by selling Pakistani stocks as they suffered serious losses in other emerging markets. Market capitalisation fell by Rs300 billion with at least 81 out of 100 companies hitting the five percent lower lock. In addition to the Chinese slowdown, the international downturn is also being attributed to the fall in international commodity prices, uncertainty over when US Federal Reserve might raise interest rates and the Greek economic collapse. The prices of oil went down four percent in one day, to $43.70 per barrel, the lowest since early 2009. Light, sweet crude futures dropped below $39 a barrel on the New York Mercantile Exchange.
The crisis started when the Chinese government decided to devalue the yuan by around two percent two weeks ago which sparked concerns over low growth in Chinese exports. Experts have now predicted that the devaluation of the Chinese currency is likely to flood the market with cash. The biggest impact was felt by Chinese stock markets where the Chinese Shanghai Composite index came down by 8.5 percent on Monday. This is the biggest one-day slump in China since 2007. From June to August, the Shanghai Composite has come down from 5,200 to 3,200 points, losing around 40 percent of its value. Trade in a number of stocks was suspended on Monday after the value of stocks fell 10 percent. The average fall in international stock markets was at least 3 percent. The FTSE 100 lost $74 billion in value. The impact of what is being called ‘Black Monday’ is being felt across the globe with KSE-100 being a small part of the global collapse. When the US stock markets opened on Monday, the Dow Jones index fell by 1000 points before recovering by mid-day to around a 400 point fall. While some observers are calling it a ‘correction’ in the global markets, Monday has shown an underlying instability in the global financial system. Big chip stocks such as Apple and Facebook shed over 10 percent of their value. The three key nodes of the global economy are in a steady crisis. Europe, the US and China are all facing serious problems. There are no immediate remedies available in the stock market as the international impact of the collapse will be felt in Pakistan. The month of August has wiped at least $5 trillion off the global economy. Is this a full-blown economic crisis? It is too early to say. But it does say something about the volatility of the global economy that a decrease in the value of the Chinese currency has set off questions about the entire economic recovery story that has been painted since the last global economic crisis in 2007.