Asia stocks, currencies tumble on weak China data

An investor reacts in front of screens showing stock market movements at a brokerage house in Shanghai on Sept 1, 2015.
An investor reacts in front of screens showing stock market movements at a brokerage house in Shanghai on Sept 1, 2015. PHOTO: AFP

Unexpected slump in China's factory output adds to pressure from Wall Street sell-off

New figures signalling the slowest pace of manufacturing activity in China since the global financial crisis sent bourses across Asia tumbling, and Asian currencies languishing near multi-year lows to the greenback.

A sell-off on Wall Street on Tuesday did not help.

Instead of an anticipated bounceback, Caixin/Markit's Purchasing Managers' Index (PMI) sank to 47 this month - its lowest level since April 2008 - from 47.3 last month, just shy of economists' forecasts of 47.5.

The Caixin report, coming a day after the Asian Development Bank lowered its growth expectations for Asia, given China's slowdown, suggests a broad decline across key categories from output and new orders to exports and employment.

This weaker-than-expected PMI reading in the world's No. 2 economy is making the US Federal Reserve's decision to stay its hand on its first interest rate rise in nearly a decade look even more reasonable, some economists say.

FED'S MOVE 'VALIDATED'

This weaker-than-expected PMI reading in the world's No. 2 economy is making the US Federal Reserve's decision to stay its hand on its first interest rate rise in nearly a decade look even more reasonable, some economists say.

The Fed noted that heightened global economic uncertainty could "restrain economic activity somewhat" and suppress already sluggish domestic inflation.

"There is still plenty of time until the December meeting for markets to calm down, and for the Fed to become confident that the external drag on US growth is not too serious," said Mr Richard Jerram, the Bank of Singapore's chief economist.

Most Asian currencies - already pressured by looming US interest rate hikes and a slowing China - weakened further yesterday against the US dollar.

Commodity-linked currencies fell, with the rupiah down 0.2 per cent, the ringgit sliding 0.8 per cent and the Australian dollar sinking 0.7 per cent. The Singdollar weakened to 1.4215 from 1.4168 against the greenback.

On the equity front, Singapore slipped 0.8 per cent, Hong Kong plunged 2.3 per cent, Shanghai tumbled 2.2 per cent and Shenzhen shed 0.8 per cent. Malaysia lost 1.4 per cent and Jakarta, 2.3 per cent.

But some economists believe that worries over a sharp Chinese slowdown are overblown, saying the PMI data only reinforces views that China's manufacturing output is playing a smaller role as it rebalances growth towards services.

"While the weaker-than-expected PMI is clearly disappointing, it is not enough to change our view that the current pessimism over China is overdone," said Mr Julian Evans-Pritchard, a China economist with Capital Economics.

"That's not to say that China doesn't still face structural drags on growth, notably from a continued slowdown in property construction.

"But with most of the key leading indicators such as fiscal spending and credit growth now looking supportive, we continue to expect a cyclical recovery in economic activity over the coming quarters."

HSBC economist Qu Hong Bin also sees a modest rebound in China's economic output by the year end.

"Housing sales growth has been accelerating for four consecutive months. Beijing has stepped up easing by speeding up infrastructure project approvals and improving local government financing. This should lead to acceleration in infrastructure investment in the coming quarters. Lastly, there is little sign that the equity market fall has hit consumer spending," he said.

If the economy faces a real risk of slowing sharply, he thinks Beijing will launch a "circuit breaker" stimulus package to save the economy.

A version of this article appeared in the print edition of The Straits Times on September 24, 2015, with the headline 'Asia stocks, currencies tumble on weak China data'. Print Edition | Subscribe