China's Stock Slump Continues; Europe's Markets Bounce Back 2015-08-26

China cut interest rates a quarter of a percentage point Tuesday, to 4.6 percent, and eased bank reserve requirements, effectively pumping more money into the system to stimulate the economy. But while the move helped stabilize markets in Europe and, for a time, the U.S., it wasn't enough to halt the slide in Asia.

Kevin O'Leary at Boston-based investment manager O'Shares Investments said that's because the outlook for China's growth remains murky.

"Instead of thinking of China growing at 8 percent, we think, it's going to grow 5 or 6 percent," he said. "That's 20 percent less growth than anticipated."

That led some investors to avoid the uncertainty in Chinese equities and focus instead on looking for value in discounted stocks.

Eric Wiegand, a senior portfolio manager at US Bank, said that "for U.S. investors, we find that this is creating opportunities. We still believe that as far as domestic equities are concerned, there is a great deal of attractiveness to shares."

But unless China finds its footing, any recovery in U.S. and European markets is bound to be short-lived.

Economist Nicholas Lardy of the Peterson Institute for International Economics in Washington, one of the leading experts on China's economy, said, "I think the main reason China matters so much is it's the second-biggest economy in the world. It's the second-largest trading economy, so if China's economic performance is going to suffer, the rest of the world is going to pay a price."

For financial markets around the world, the price has been increase volatility. That was evident Tuesday on Wall Street, when stocks rose as much as 3½ percent in early trading, only to plunge back into negative territory in time for the closing bell. The Dow Jones industrial average was off 1.3 percent at the close of trading.