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The
pan-European FTSEurofirst 300 fell 3.2 percent to 1,381.77
points by mid-session, taking roughly 270 billion euros off the
value of shares.
The index sank to its lowest level since January, having lost
over a trillion euros in market value since the start of the
month as China's devaluation of the yuan stoked fears of global
economic deflation.
Chinese stocks plunged more than 8 percent on Monday, in their
biggest one-day loss since the height of the global financial
crisis in 2007 after Beijing held back expected policy support
at the weekend following last week's 11-percent slide.
"The events in China are clearly serious and demonstrate that
the development model there is struggling to maintain growth,"
Taube Hodson Stonex Partners fund manager, Mark Evans, said.
VOLATILITY RISES
The STOXX 600 Basic Resources Index <.SXPP>, whose constituents
are mostly mining stocks, and the energy sector <.SXEP> fell 5.9
percent and 4.2 percent respectively, as commodities slumped to
multi-year lows, China being one of the world's biggest users of
metals and oil.
Shares in banks and asset managers also fell sharply,
while the Euro STOXX Volatility Index rose 4.8 points to its
highest level since October 2014 - more evidence of investor
unease.
Nevertheless, strategists at JP Morgan Cazenove and Taube Hodson
Stonex's Evans said that the sell-off may have been overdone.
"Momentum may carry developed markets lower – the U.S. in
particular has risen so strongly and to such a high valuation
that a correction was due," Evans said.
"European markets have not re-rated to anything like the same
extent and remain attractively valued in our view – though they
too may sag a bit further."
However, strategists at Societe Generale warned that their
basket of European stocks with strong business ties to China,
which includes carmakers and luxury goods companies, might come
under more selling pressure in the near-term.
(Additional reporting by Sudip Kar-Gupta; Editing by Louise
Ireland)
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