A worldwide market slump gains traction

Nathaniel Popper

Stock markets fell around the world Friday as investors worried about an economic slowdown in emerging markets.

The concerns led to the first sustained decline in U.S. stock indexes in 2014. The Standard & Poor's 500-stock index was down about 1.3 percent at midday Friday, bringing it down 2.3 percent for the year so far. The Dow Jones industrial average was down 1.3 percent and 3.5 percent for the year.

The downturn was much worse elsewhere, with the Euro Stoxx 50 index falling 2.8 percent, bringing it into the red for 2014.

The declines this week have been fed by disappointing economic news out of China and the rest of the developing world. An index of Chinese manufacturing growth released Thursday showed that the sector was contracting for the first time in six months. A number of slightly disappointing economic data points in the United States have led to some concern that a slowdown in China could be contagious. On Thursday, data on home sales came in slightly lower than expected.

For most of the last decade, except for a fairly brief interlude during the depths of the global financial crisis, the world's emerging markets seemed to be the main beneficiaries of two global trends: the seemingly inexorable rise of China and the willingness of the Federal Reserve to pursue an accommodative monetary policy.

Now neither trend seems so reliable, and emerging markets are paying a heavy price. Since the Fed officially announced in December that it would ease its bond-buying stimulus, investors in emerging markets have been cautious. There are fears that rising interest rates will choke off growth in countries dependent on foreign lenders. This week, the currencies in several countries, including Turkey and Argentina, have been falling sharply. Next week, the Fed is scheduled to meet and announce whether it will continue to lower its bond purchases.

"Emerging markets can't seem to escape the shadow of the Federal Reserve," Andrew Wilkinson, the chief market analyst at Interactive Brokers wrote to clients Friday.

As for the other trend, from the soybean farms of Brazil to the coal mines of Indonesia and from the palm oil plantations of Malaysia to the nickel mines of Mozambique, emerging markets seemed until very recently to have an inexhaustible market in China. As China has emerged as the world's biggest producer and biggest market for everything from steel to cellphones to cars, the demand from China for raw materials soared year after year.


By NATHANIEL POPPER
New York Times News Service