Asian markets drop as Chinese factory data prompt jitters

Asian shares fell Monday amid jitters about weakening Chinese manufacturing data and continued declines in commodity prices.

The Shanghai Composite SHCOMP, -1.11% slipped 1.1% to 3,622.91, while Hong Kong’s Hang Seng Index HSI, -0.96% slid 1.2% to 24,344.10.

A gauge of factory-floor activity fell to a two-year low on Monday, adding to worries about China’s struggling stocks, sluggish property market and weak demand at home and abroad. The Caixin China manufacturing purchasing managers index fell to 47.8 in July, compared with 49.4 in June, Caixin Media Co. and research firm Markit said Monday. A reading below the 50-level indicates contraction.

The final reading was lower than the Caixin preliminary July PMI of 48.2 and the official manufacturing PMI, released Saturday. That gauge fell to 50.0 in July from 50.2 in June, according to the National Bureau of Statistics.

The disappointing economic data gives ballast to the case for more monetary easing in the second half of the year, said Nomura analyst Wendy Chen, adding that the central bank is very likely to lower the amount of reserves banks are required to hold again in August.

The reading also follows comments over the weekend by central bank official Sheng Songcheng about his darkening economic outlook for the second half of the year, according to the state-run Securities Times newspaper.

“Investors are anticipating further policy support, given sluggish economic outlook in the second half this year,” said Li Lei, an analyst at China Minzu Securities, who expects stronger stabilization measures from Beijing if the Shanghai market slides below 3500 this week.

In July, the Shanghai Composite suffered its worst month in nearly six years, revealing a receding confidence in Beijing’s ability to stem a selloff that began in mid-June. The Shanghai Composite Index lost 14% in July.

The latest measures by Chinese regulators to stem selling include an investigation into suspicious activity of trading on the mainland. China’s securities regulator said Friday that it has launched a probe into automated trading and has restricted 34 stock accounts suspected of influencing stock prices as of Monday. The government didn’t name any of the parties behind the restricted stock accounts, but U.S.-based hedge fund Citadel LLC said trading in one of the accounts it manages in China has been suspended.

Yet analysts are skeptical whether abnormal trading behavior is the main culprit behind market volatility. “The regulator is looking at the technical reason of extreme market swing, but the total capital of those restricted accounts is limited, and thus it cannot be the determining factor of volatility,” said Li.

Elsewhere, Australia’s S&P ASX 200 XJO, -0.35% lost 0.4%, the Nikkei Stock Average NIK, -0.18% was down 0.2% and South Korea’s Kospi SEU, -1.07% slid 1.1%.

“The biggest question for the month is whether we give back the gains from July,” IG market strategist Evan Lucas said of Australia’s market. Australia’s earnings season gets into full swing this week, with companies including Suncorp Group Ltd., Virgin Australian Holdings Ltd., and Rio Tinto Ltd. set to report. The ASX 200 climbed 4.4% last month, the first monthly rise since February.

The share declines in Japan came even as the yen USDJPY, +0.22% weakened. The currency last traded at 124.09 from 123.92 late Friday in Asia.

Hiroyuki Fukunaga, CEO at Investrust, said Japan stocks are likely to continue trading in lackluster fashion before anxiously awaited U.S. jobs data is delivered on Friday.

A softer yen, in addition to the benefits of growing North American demand and higher spending by foreign tourists, has helped Japanese corporates, which have so far reported robust profit growth in the April-to-June quarter. Of the 596 nonfinancial companies closing their books in March that reported earnings by the end of July, 70% saw pretax profit increases on the year.

In contrast with China, PMI data on Monday rebounded in South Korea and Taiwan. But both readings were still in contraction territory, coming in below the 50-level.

“It appears a global economic slowdown is likely to remain a headwind to growth in the second half of the year, as panelists mentioned softer demand in key export markets such as China, Europe and the U.S.,” Annabel Fiddes, an economist at Markit, said of Taiwan.

The losses in the commodities markets Monday came after big oil companies pulled the Dow Jones Industrial Average DJIA, -0.32% lower Friday, on disappointing earnings reports and signs of increased U.S. oil drilling.

Source: MarketWatch