Coverage: China’s economy causes another market slump

The new year is off to a shaky start for Chinese markets with weaker-than-expected manufacturing data causing markets to drop, forcing government officials to halt the day’s trading early.

International markets are also feeling the impact from the latest signs of China’s economic slump.

Paul Mozur of The New York Times explained what caused Monday’s market slump for China:

The trouble on Monday began after the release of weak manufacturing data for China. The Caixin purchasing managers’ index for December, compiled by the market data firm Markit, fell to 48.2, well below expectations and lower than the reading in November. Any rating below 50 indicates a contraction in manufacturing. The Caixin index is a nongovernmental survey of smaller businesses in China; the government index, which focuses on larger companies and was released on Friday, also showed a continued contraction.

China’s markets soon tested the new circuit breaker set up after last year’s instability.

“To some degree, whenever you introduce new measures such as a circuit breaker, the market has a tendency to test those mechanisms, so perhaps it’s not completely surprising,” said Julian Evans-Pritchard, China economist at Capital Economics.

He added that the circuit breaker limited liquidity, making it more difficult to get out of trades for the day and therefore potentially pushing markets further down.

Looking forward, Devendra Joshi, an HSBC Asia equity strategist, said that any potential rise in Asian equities for the year would be driven mostly by corporate earnings growth, not by broader improvement in market sentiment.

“This will be the theme for the year,” he said. “There will be more volatility. What happened with today’s P.M.I., you can pin it on that news, but we think this year’s equities will go through these phases.”

Christopther Whittall and Riva Gold of The Wall Street Journal wrote about how China’s economic slump is impacting markets across the globe:

Global stocks started 2016 with a sharp sell-off as fresh signs of economic slowdown in China deepened fears about global growth and lowered hopes for a better year.

Weaker-than-expected manufacturing data and a falling currency triggered a 7% fall in mainland Chinese stocks that led authorities to halt trading there for the rest of the day.

Meanwhile, investors said rising tensions between Iran and Saudi Arabia added to bearish sentiment across markets.

The Stoxx Europe 600 fell 2.4% midmorning, led by a 3.5% drop in Germany’s exporter-heavy DAX index.

Futures markets pointed to a 1.5% opening loss for the S&P 500. Changes in futures aren’t necessarily reflected in market moves after the opening bell.

“It’s a big [market] move by any measure,” said Chris Jeffery, an asset-allocation strategist at Legal & General Investment Management, which oversees £728 billion in assets.

“China is now number two in terms of the global economy. It’s hard to ever move away from it,” said Mr. Jeffery.

Joe McDonald of the Associated Press laid out a timeline of China’s recent market turbulence:

The biggest one-day declines since June and government responses:

– June 26: The benchmark Shanghai Composite Index falls 7.4 percent as part of a slide triggered by investor concern a change in bank regulations is aimed at limiting credit to finance trading.

– June 27: Beijing cuts interest rates for a fourth time since November to reassure investors of official support for the market.

– June 29: The government announces its main pension fund for civil servants will be allowed for the first time to invest in stocks.

– July 1: Mainland China’s two stock exchanges in Shanghai and Shenzhen cut trading fees by 30 percent.

– July 3-5: Regulators cancel initial public stock offerings in response to fears of too little demand. Authorities pour more money into a state-owned fund that finances stock trading. Brokerages create a 120 billion yuan ($19 billion) fund to buy shares.

– July 8: Regulators announce insurance companies will be allowed to invest more in stocks. Brokerages expand their stock-buying fund. An arm of China’s sovereign wealth fund says it will buy shares.

– July 27: After more than 1,000 companies suspend trading in their shares, the Shanghai Composite Index falls 8.5 percent despite a government ban on sales by major shareholders.

– Aug. 19: The Shanghai index declines 5 percent but rebounds in the last minutes of trading to close up 1.2 percent in what analysts say might have been the last major government intervention.

– Aug. 24: The Shanghai benchmark falls 8.5 percent in its biggest one-day loss in eight years. It ends down 38 percent from its June 12 peak.

– Aug. 25: The Shanghai index loses 7.6 percent to hit an eight-month low. Beijing cuts interest rates for a fifth time in nine months.

– Jan. 4: The index loses 6.9 percent in its first trading day of 2016. Trading is halted for the day after a broad market index, the CSI 300, falls 7 percent by early afternoon, triggering a newly enacted “circuit breaker” on its first day of operation.