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Stock markets around the world plunged this week as investors absorbed more evidence that China’s economy is slowing. In the US, the Dow suffered its worst week since 2011.

Transcript

SCOTT SIMON, HOST:

The stock market had its worst one-day crash in four years yesterday. The Dow Industrial Average plunged 531 points, and that was it in just one day. Last week saw a global sell-off that sent markets around the world sharply lower. NPR’s Chris Arnold reports.

CHRIS ARNOLD, BYLINE: Investors were dumping stocks overboard like sailors trying to lighten a sinking ship on Friday. The one-word answer as to why, China. China is reporting a surprise slowdown in growth, and investors don’t like that kind of surprise from the world’s second-largest economy.

KAMEL MELLAHI: There is an air of fragility among the Chinese economy.

ARNOLD: Kamel Mellahi is a professor at the Warwick Business School in England, and he studies emerging markets. And he says some slowdown in China is by design. The Chinese government, he says, has been raising the minimum wage and trying to transform the country from a Third World, low-cost manufacturing center into a more mature economy. But rising wages, among other things, means…

MELLAHI: China is becoming less competitive in terms of labor cost and production of cheap goods.

ARNOLD: Now, people who follow China understand this. But the slowdown in manufacturing there was bigger than expected. And that, along with some uncertainty about U.S. interest rates and the weak overall economy in Europe, all this appears to have sparked the sell-off. Still, many money managers so far see this as an orderly correction for stocks and not a panic-driven disaster.

DAVID KOTOK: I think we got a correction. It’s about time.

ARNOLD: David Kotok is chief investment officer of Cumberland Advisors.

And what makes it about time?

KOTOK: Well, markets can’t go up forever. They have to correct. They have to restore balance. To do that, they have to sell off. They have to do it with violence, volatility. They have to make people nervous. That’s good.

ARNOLD: Kotok says it’s good because that’s what stops stocks from getting into dangerous bubble territory. But he says looking over the long term, the U.S. economy is continuing to recover. And over the next few years, he thinks stocks will rise well above where they were before this sell-off. Chris Arnold, NPR News.

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