Asian stocks fell on Wednesday as a key measure of China’s manufacturing strength declined more than expected to its lowest since 2009. It reflected concerns that the world’s second-biggest economy is growing at a slower pace than previously thought.
European stocks, however, bucked the trend after better than expected macroeconomic expectations were released that signalled to investors that the euro zone has not been as badly affected by China’s woes.
“As China is getting a cold, the virus is spreading basically,” said Aymeric Forest, a multi-asset fund manager at the London-based asset manager Schroders who oversees about US$12.5 billion. “In this environment, we believe that yields should remain relatively low and there’s little chance for global monetary policy to tighten too much.”
China’s benchmark Shanghai Stock Exchange Composite Index fell 2.2 per cent, while the benchmark Stoxx Europe 600 Index increased 0.6 per cent. The euro-zone economy is expected to continue to grow after increasing by an estimated 0.4 per cent in third quarter, according to Markit Economics, a company that produces closely watched economic indicators.Meanwhile, the European Central Bank president Mario Draghi said on Wednesday that it is still too early to tell economically if Europe will need more financial stimulus.
In China, a Purchasing Managers’ Index from Caixin Media and Markit Economics dropped to 47.0 in September. That missed the median estimate of 47.5 in a Bloomberg survey and fell from the final reading of 47.3 in the previous month. Readings have remained below 50 since March, indicating contraction.
The woes of Chinese stocks, which have been plummeting back to earth in recent months after a sharp rise, are weighing heavily on global investor sentiment, especially since the country is one of the biggest consumers of many commodities ranging from oil to copper. While the benchmark Chinese stock index is down only about 4 per cent year to date, since last June it has lost more than 75 per cent of its value.
And the fallout in China has weighed heavily on other emerging markets such as Brazil and Russia, which are major commodity exporters. At the same time, currencies of developing countries have been declining against the US dollar.
Investors dumped global stocks last week after the Fed’s decision to refrain from raising interest rates. The Fed chairwoman Janet Yellen expressed concerns about the turmoil in China and emerging markets spilling over into the US. That has caused investors to question the outlook for the global economy.
“It’s a fair reflection of more uncertainty surrounding the pace of nominal growth in the world and this low inflationary environment is likely to remain,” said Mr. Forest of the sell-off.
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