Data adds to worries about spillover effects of its slowing economy
Markets in Asia deepened losses Wednesday, after manufacturing data from China stoked worries about spillover from its slowdown–just as President Xi Jinping reaffirmed his commitment to economic reforms during a U.S. visit.
An early reading of Chinese manufacturing activity (http://www.marketwatch.com/story/china-factory-gauge-reaches-new- low-in-september-2015-09-23) from Caixin Media Co. and research firm Markit Ltd. fell to 47.0 in September, a six-and-a- half year low, from a final reading of 47.3 in August. A figure above 50 indicates expansion from the previous month, while a reading below that indicates contraction.
“The market reaction was immediate” following the data, said Bernard Aw, market strategist at brokerage IG. “The weaker-than-expected reading reinforced concerns that the Chinese economy is struggling to shore up growth momentum.”
The reading comes as Xi seeks to reassure U.S. business leaders about China’s economy during his seven-day visit to the U.S., pledging Tuesday at a welcoming dinner in downtown Seattle to push ahead with economic reforms.
China’s stock market has reached a point of “self-recovery and self-adjustment,” said Xi, who also defended his government’s attempt to support Chinese share prices in recent weeks.
But with the Shanghai market down 39% from a June peak, a recovery, if any, is likely to be a slow one.
On Wednesday, the Hang Seng Index fell 3.4% while the Shanghai Composite Index lost 2.1%.
Australia’s S&P ASX 200 fell 2% and South Korea’s Kospi fell 1.4%. Japan’s markets remain closed for a national holiday, and are set to reopen Thursday.
Asian currencies sensitive to Chinese demand depreciated further, as the weak factory reading added to many factors weighing on emerging-market exchange rates, including weak global demand and the prospect of higher interest rates in the U.S.
The Indonesian rupiah fell 0.9% against the U.S. dollar from late Tuesday, reaching a fresh-17 year low while the Malaysian ringgit fell as much as 1.2%. The Australian dollar was 0.8% weaker, both against the U.S. dollar, compared with late in Asia the previous day. The latter was heading back to $0.70, a level it dipped below earlier this month for the first time in years. Most analysts expect emerging-market currencies to continue weakening.
The Japanese yen slipped 0.1% to below Yen120 per U.S. dollar.
The initial gauge of China’s September factory activity follows on the heels of the U.S. Federal Reserve’s decision last week to leave its interest rates unchanged, a move that had shaken some investors’ outlook on the economic health of the world economy. On Tuesday, the Asian Development Bank cut its growth forecast for the Asia region to 5.8% in 2015 and 6.0% in 2016 from 6.3% previously forecast for both years. The Manila-based development lender cut China’s growth forecast for this year to 6.8% from 7.2%.
Overnight, global stocks fell, as investors punished commodities producers once again amid crumbling raw-materials prices and ahead of the China data. The Dow Jones Industrial Average lost 1.1% on Tuesday (http://www.marketwatch.com/ story/us-stocks-dow-futures-drop-by-more-than-200-points-2015-09-22).
Shares in Australia, which counts China as its largest export market, have fallen most in the region so far this week, off more than 3% week-to-date.
“The [International Monetary Fund] and many investment houses see Australia being the most affected by a China slowdown,” said Evan Lucas, a strategist with brokerage IG, in a morning note.
Oil prices in the U.S. slid by 1.8% overnight, although brent crude oil was last down 0.6% at $49.58 in Asia trade.
Oil prices have traded in a tight range for several weeks, as falling U.S. production supports the market but concerns about global demand weigh on prices.