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The major British and European markets were down by 3 to 5 per cent, after the Shanghai Composite index dropped by 8.5 per cent as worries about a slowing Chinese economy took hold.
The New Zealand dollar slumped to its lowest level in six years as equities sank amid concerns about global growth.
Shane Solly, portfolio manager and research analyst at Harbour Asset Management, said another day of selling was likely for the local market.
"It was obviously another rough night on the markets globally," he said.
"We have seen a retracement on the back of changes in the Chinese economy," he said, adding there were rising concerns about global growth, as well as growth in China and in the other emerging markets.
"We have had a very strong run in the capital markets in the last three years and it's not a surprise to see it falling back, but we are going to see more volatility," he said.
Fund managers said that while the local market could expect to see more turbulence arising from volatility in offshore markets, the New Zealand economy was in better shape than many of its peers. Furthermore, the Reserve Bank had more leeway to cut official interest rates if there is a marked turn for the worse. The official cash rate stands at 3 per cent.
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See this AP interactive on recent US sharemarket trends:
The kiwi touched 62.44 US cents overnight, its lowest level since July 2009, amid low liquidity, and was trading at 64.90 cents at 8am in Wellington, from 65.89 cents at 5pm yesterday.
See video: Stock market: Explaining the Dow's big drop
Fund managers said that while the local market could expect to see more turbulence arising from volatility in offshore markets, the New Zealand economy was in better shape than many of its peers. Furthermore, the Reserve Bank had more leeway to cut official interest rates if there is a marked turn for the worse. The official cash rate stands at 3 per cent.
Four reasons the NZX wasn't hit as hard:
• Much of the weakness overseas is related to oil and resources, which do not feature strongly on the NZX.
• The economy is generally in better shape than many of its peers.
• There are still levers to pull if the economy does worsen from here - such as lower interest rates and a lower exchange rate.
• The company reporting season has seen some solid results, which has helped to offset some of the weakness.
See video - China investors look for safe haven:
with BusinessDesk