Markets worldwide registered one of the worst starts to a year on record, as fresh evidence of global economic frailty set off a wave of selling by unnerved investors.
There were few places to hide from the deterioration in sentiment that swept through Asia, Europe and North America – a discouraging start to the year for anyone hoping for a reprieve from the burdens that defined stock markets in the year just ended.
"The market action today was consistent with concerns about slow growth," said Bruce Cooper, chief investment officer of TD Asset Management. "From our perspective, it's going to be a fairly challenging year for investors."
The flight to safe havens on Monday was prompted by new data indicating that both the Chinese and U.S. manufacturing sectors may be weaker than thought.
The ensuing stock sell-off started in China with a 7-per-cent fall in the CSI 300 index, which triggered for the first time a circuit-breaker mechanism that shut down all trading for the remainder of the day in Shanghai and Shenzhen. The index tracks the largest stocks on the two exchanges.
Chinese stocks have never started the year with a worse performance, renewing fears about the health of the world's second-largest economy, whose slipping GDP numbers and weakening outlook stand to weigh on global growth in 2016. Monday was the inaugural day for the Chinese stock market circuit breaker, which was designed to stop the kind of single-day routs that marked the 2015 trading year.
Its immediate use was "not an auspicious beginning to the year," said Thomas Schroeder, the Bangkok-based founder and managing director at Chart Partners Group Ltd.
That followed the release of the China Caixin Manufacturing Purchasing Managers' Index, which, at 48.2 in December, fell well below the threshold for economic contraction of 50.
The closely watched metric had risen to 48.6 in November and economists had expected it to rise to 48.9 last month.
Chinese investors are also worried about Beijing halting the tens of billions of dollars in spending it used to prop up markets in 2015. Last July, with stocks plunging, Chinese authorities barred major shareholders from selling for six months in hopes of engineering stability.
But the selling prohibition period will soon end, raising fears of a selloff by large investors. That may have exacerbated the panic among Chinese investors, who faced being shut out of a suspended market.
The losses in Chinese stocks then snowballed into developed markets.
"The selloff in Europe and the U.S. market was a knee-jerk response to a selloff in the Chinese stock market," said Jonathan Golub, chief U.S. market strategist at RBC Capital Markets. "This is a classic risk-off trade."
The Stoxx Europe 600 Index fell 2.5 per cent, capping its worst start of the year ever as almost 580 of its companies fell. Germany's DAX Index, among the best performers in 2015, dropped 4.3 per cent, the biggest slide for the export-driven gauge since the China-led rout in August.
Meanwhile, treasury yields fell as investors sought safety. The yield on 10-year U.S. Treasury notes fell marginally on Monday to 2.24 per cent, for example. The volatility gauge known as the VIX rose by 14 per cent.
It was also the kind of day that might normally put additional downward pressure on oil prices, but crude was only slightly negative on the day.
Tensions between Saudi Arabia and Iran, which could conceivably result in oil supply constraints, helped to offset crude losses, which positioned Canada relatively well amid the global selloff, Mr. Golub said.
"Canada should have probably taken it harder than most, because of the commodity exposure," he said.
The S&P/TSX composite index declined by 0.6 per cent on Monday, which ranked it as one of the best-performing major global benchmarks.
The S&P 500 index more than doubled those losses after the U.S. ISM manufacturing index fell to 48.2, its lowest level since June, 2009.
"Despite the awful ISM, the U.S. economy is still growing," Krishen Rangasamy, an economist at National Bank of Canada, said in a note. "For now, the services sector is providing an offset to the factory slump."
With a report from Bloomberg News