Decline in Chinese manufacturing causes global markets to fall

A report released Monday which showed China’s manufacturing sector in decline for the tenth straight month in December set off a wave of selling in global equity markets, as the CSI 300 Index lost seven percent for the day.

The numbers released by Caixin Insight Group pointed to declines to new domestic and import orders from Chinese factories, coupled with a draw-down in production.  As a result, the firm’s chief economist, He Fan, commented that “the [Chinese] economy is facing a greater risk of weakening.”

“I don’t think we can call this a soft recovery yet – just that growth is decelerating at a slower pace,” said Mizuho Securities Asia economist Jianguang Shen. “The problem is on transmission. Money is not flowing into the real economy.”

The disappointing industrial output statistics caused China’s equity market to initially fall by five percent, triggering an automatic halt to trading for 15 minutes.  When trading resumed, the CSI 300 almost instantaneously fell by an additional 2 percent, which triggered a second halt lasting the rest of the day.

January 4 was the first day new “circuit breaker” rules were in effect, proposed by Chinese financial regulators in September 2015 after the equities market there lost $5 trillion in value between mid-June and late-August.

The entire Chinese stock market is worth approximately $7.1 trillion.

The sharp decline in stock’s in the world’s second largest economy sent European and U.S. stocks reeling when markets opened in the West Monday, with the German DAX declining 4.28 percent, and the STOXX 600 (an index representing companies in 18 European countries) retreating 2.5 percent.

In the U.S., the Dow Jones Industrial Average and S&P 500 indexes both were down by as much as 2.5 percent, setting the stock market up for its biggest decline on the first day of trading in the new year since 1932.

A U.S. manufacturing index also reported a contraction for the sector in December on Monday, with output numbers coming in below economists’ expectations, and lower than November’s production index total.

The NASDAQ Composite Index, which is comprised of more technology companies than the New York Stock Exchange, has been hit the hardest so far in the U.S., declining 2.75 percent as of 2:57 p.m. EST.

 

[MarketWatch] [Bloomberg] [CNBC]