Analysts said prolonged low interest rates in the West and weak crude oil prices, rather than concerns over the Chinese economy, were the main cause of stock market fluctuations across the globe this week.
Despite a rebound on Friday, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite Index lost 1.4 percent, 0.8 percent and 0.6 percent respectively this week, when the Chinese market was closed for the Spring Festival.
The 225-issue Nikkei Stock Average fell 4.8 percent on Friday and plummeted more than 10 percent during the week. The British FTSE 100 Index and the German DAX Index also touched new lows before strong rallies on Thursday and Friday.
"The root cause of the sweeping drops was that economic fundamentals failed to sustain a long bullish market in the West fueled by too much liquidity since 2008," said Ren Zeping, chief macro strategists at Chinese brokerage Guotai Junan Securities.
To cope with the 2008 global financial crisis, many central banks have since adopted easy monetary policy with very low interest rates, which encouraged excessive speculation and led to asset price bubbles, according to Ren.
Xiao Lei, a senior market observer, also believes this round of global market falls had little to do with the slowing Chinese economy or the yuan's recent depreciation.
"The Western markets swings were mainly caused by persistently low crude oil prices, which forced oil producing countries to repatriate their sovereign wealth funds from overseas stock markets to ease domestic money strain," said Xiao.
The withdrawing of the huge amount of capital also added pressure on Western banks and thus intensified the stock market swings, according to him. The global declines this week raised concerns that the Chinese shares could drop when the market opens on Monday morning.
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