WASHINGTON: A plunge for the Shanghai stock market is leading a global equity retreat as worries about China’s economy and heightened Middle East tensions see investors start the new year off in a sour mood.
US index futures suggest the S&P 500 will shed 32 points to 2,012 and the Euro Stoxx 600 is down 2.2 per cent. Severe risk aversion is causing a rush into sovereign bonds, the yen and gold, while industrial metal prices fall sharply but oil rallies.
Beijing had to use its new circuit breaker rule to stem losses in Chinese stocks as the Shanghai Composite closed down 6.9 per cent and the Shenzhen Composite lost 8.2 per cent, its biggest fall in nine years. Hong Kong’s Hang Seng index shed 2.7 per cent.
Concerns about the health of the world’s second-biggest economy were cited as a main cause of the selling. Thinner trading volumes at the start of the year and the imminent expiration of a ban on stock sales by large shareholders, are also in contention for exacerbating the woe.
The privately-produced Caixin/Markit survey showed manufacturing activity contracted in December, the index slipping to 48.2 last month, from 48.6 in November, weaker than economists expected.
It was the 10th month in a row that China’s manufacturing sector has remained in contractionary territory, according to the Caixin/Markit survey. Official PMI data from China’s national bureau of statistics, released on Friday, showed activity shrank for a fifth straight month in December.
Economists at ANZ said they remained hopeful that other parts of China’s economy may be able to help prop up overall growth. While “weak manufacturing will likely have weighed on growth”, ANZ said, “as observed in the second and third quarters, the strong performance of the services industry, especially in the financial sector, may have offset some of the weakness from manufacturing”.
But the sight of Beijing allowing the renminbi to fall to its lowest in nearly five years — to help bolster exports — caused investors to think the authorities were also worried about the economy’s health.
