by Fears about the slowdown in China unleashed a wave of panic through the markets. The authorities in Beijing probably did not think the change in the way the exchange rate was fixed would detonate such an explosive correction on financial markets. The Shanghai Composite tumbled almost 27% in the week after that decision. It had already fallen 22% prior to that since mid-June. In China’s slipstream, the S&P 500 fell by 11%, the Stoxx Europe 600 by 15% and the Topix by 13% in local currencies over the same period. Emerging markets, particularly sensitive to developments in China’s economy, dropped by 13%, extending their slide since end-April to 28%. Although volatility had remained fairly subdued during the Greek crisis earlier in the summer, it soared to reach levels consistent with times of extreme crisis. The VIX Index rocketed above 50% whilst the VStoxx topped 45%. The second-quarter reporting season resulted in barely any changes to earnings growth forecasts for 2015: these now stand at +1.3% for companies in the US, +6.5% for Europe and +19.8% for Japan. Looking ahead to 2016, earnings growth projections have been downgraded a notch or two, to +10.6% for the S&P 500, +10.8% for the Stoxx Europe 600 and +9.1% for the Topix.
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Fears about the slowdown in China unleashed a wave of panic through the markets.
The authorities in Beijing probably did not think the change in the way the exchange rate was fixed would detonate such an explosive correction on financial markets.
The Shanghai Composite tumbled almost 27% in the week after that decision. It had already fallen 22% prior to that since mid-June.
In China’s slipstream, the S&P 500 fell by 11%, the Stoxx Europe 600 by 15% and the Topix by 13% in local currencies over the same period.
Emerging markets, particularly sensitive to developments in China’s economy, dropped by 13%, extending their slide since end-April to 28%.
Although volatility had remained fairly subdued during the Greek crisis earlier in the summer, it soared to reach levels consistent with times of extreme crisis. The VIX Index rocketed above 50% whilst the VStoxx topped 45%.
The second-quarter reporting season resulted in barely any changes to earnings growth forecasts for 2015: these now stand at +1.3% for companies in the US, +6.5% for Europe and +19.8% for Japan.
Looking ahead to 2016, earnings growth projections have been downgraded a notch or two, to +10.6% for the S&P 500, +10.8% for the Stoxx Europe 600 and +9.1% for the Topix.
As share prices have been on the slide, valuation multiples have been turning more attractive, coming back to their October 2014 levels (S&P 500: 14.5x; Stoxx Europe 600: 13.3x; Topix: 12.4x).
This means valuations are now once again close to their long-term averages.