NEW YORK (AP) — There’s no reason for panic. Worry, yes, but not panic.
That was the opinion of some U.S. investment strategists after another free fall on China’s main stock market reverberated around the globe Thursday and sent the Dow Jones average to a loss of nearly 400 points.
Stock prices in China fell so fast that, for the second time in four days, circuit-breaker mechanisms kicked in and halted trading, this time after just 30 minutes.
For U.S. markets, it was the worst one-day drop since late September, and the main U.S. benchmark, the Standard & Poor’s 500 index, has now had its worst four-day opening of a year in history.
The tech-heavy Nasdaq composite index fell into what market watchers call a “correction,” or a drop of 10 percent from a recent peak. The Nasdaq has fallen for six days straight. The Dow average is down 9.8 percent from its peak in May, and the S&P 500 index has lost 8.8 percent since then.
The malaise spread across continents, sending global indexes sharply lower. The price of U.S. crude oil plunged to its lowest level since 2004 as traders worried that weakness in China would translate into lower global demand for energy. It sank 70 cents, or 2.1 percent, to $33.27, its lowest close since February 2004.
China’s tumbling stock prices are, in themselves, nothing for investors outside the country to panic over. Because of government regulations, very few foreigners even own stocks on the Chinese markets that seized up.
But the selling was prompted by a surprise currency devaluation by the Chinese government and by worries about a slowdown in the country’s manufacturing and service sectors. Because China is the second-largest economy in the world, those problems could spell trouble around the globe.
“This is not a situation that should result in panic; it should result in caution,” said Kristina Hooper, head of investment strategies for the U.S. at Allianz Global Investors.
After the market closed Thursday, Chinese regulators removed the circuit breakers, hoping that will allow markets to find their level.
But that may mean even more volatility in a year that has already had a lot.
“We’re only seven days into 2016 and we’ve already had North Korea’s nuclear test, Saudi Arabia and Iran cutting diplomatic relations and China devalue their currency,” Hooper said. “It’s going to be a volatile, turbulent year, and investors need to be prepared for that.”
Even though China’s economy is still growing at a rate that would be the envy of advanced economies, it’s only about two-thirds of what it was five years ago and is expected to slow further.
A slowdown in China is seen as a threat by many investors because the country has been the main engine of global economic growth for years, particularly during the depths of the Great Recession.
U.S. and European companies have rushed to sell cars and a multitude of other products to China’s fast-growing middle class. China accounted for more than half of Apple’s revenue growth in the fiscal year that ended in September.
Also, the country’s huge manufacturing sector is a major buyer of machinery and basic materials such as copper and oil, often from countries such as Brazil and Russia.
For companies looking to export to China, the devaluation of the yuan is also bad news: It makes their products more expensive when brought ashore, putting them at a competitive disadvantage.
All these factors could drag down profits at corporations all over the world.
Another problem: Investors don’t trust official economic figures from the Chinese government. China says its economy is growing at close to 7 percent, but many investors think that is inflated. After all, the country’s official unemployment rate has been basically unchanged for years.
Many investors look instead at how much electricity is being produced and other statistics they consider more reliable. Mutual fund managers say China’s actual economic growth could be closer to 4 percent.
“Chinese growth is clearly slowing, but it is not plummeting,” said Ben Mandel, a strategist with JPMorgan Funds.
The slowdown has already hit corporate profits. American heavy-equipment maker Caterpillar is seeing sales weakening not only in China but also in Brazil and other countries that dig out the commodities China used to be so hungry for.
Still, Japan and Europe do a lot more business in China than the U.S. does, and as a result, they face higher risks.
“It will not translate into a mortal threat to U.S. economic growth,” Mandel said. “When we talk developed markets, Japan is the most heavily exposed to China, with Europe being in the middle, and last is the U.S.”
That’s one reason European and Japanese stock indexes have fallen even more than U.S. markets this week. China is a key market for Germany’s BMW and Mercedes Benz, for example, and Germany’s DAX index is down 7.1 percent this week. Japan’s Nikkei 225 index is down 6.7 percent.