Inside Financial Markets

Asian Stocks Drop as China Manufacturing Expansion Slows

asia stock upAsian Stocks Drop as China Manufacturing Expansion Slows

Asian stocks fell, with the regional benchmark index heading for its first decline in four days, after an official gauge of manufacturing activity in China expanded at the slowest pace in four months.

Samsung Electronics Co. (005930), the world’s biggest smartphone maker that gets about 20 percent of sales from China, lost 0.7 percent in Seoul. Commonwealth Bank of Australia, the nation’s largest lender, fell 2 percent. Hisamitsu Pharmaceutical Co. (4530) surged 6.4 percent in Tokyo after its Noven unit won U.S. approval for its drug to ease hot flushes associated with menopause.

The MSCI Asia Pacific Index fell 0.3 percent to 130.13 as of 11:52 a.m., with about four shares falling for every three that rose. The gauge had its first quarterly slump in the three months through June 30 amid signs of economic slowdown in China and as Federal Reserve Chairman Ben S. Bernanke said last month policymakers may start dialing down stimulus if the U.S. economy shows sustained improvement.

“China seems to be the biggest risk for markets now,” Nader Naeimi, Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages more than $130 billion said in a telephone interview. “If growth slows too much, unemployment will rise and this will lead to social unrest. We don’t know how far authorities will tolerate slower growth. The Japanese market appears to be building a base for the next leg of the rally. We may see further earnings upgrades as the benefits of Japan’s monetary stimulus begins to show.”

Australia’s S&P/ASX 200 Index slipped 1.6 percent, while New Zealand’s NZX 50 Index lost 0.2 percent before connectivity issues forced a halt to trading on the Wellington bourse. South Korea’s Kospi Index dropped 0.2 percent and Taiwan’s Taiex index retreated 0.3 percent. Markets in Hong Kong and Thailand are closed for holidays.

Tankan Survey

Japan’s Topix swung between gains and losses, while the benchmark Nikkei 225 Stock Average fell 0.5 percent.

Big Japanese manufacturers became optimistic for the first time since September 2011, indicating confidence in Prime Minister Shinzo Abe’s reflationary policies even after stock market volatility. The quarterly Tankan index for large manufacturers rose to plus four in June, beating the plus three forecast by 22 economists surveyed by Bloomberg, and up from minus eight in March. A positive figure shows optimists outnumber pessimists.

“Recovery in Japan is going to be very crucial to the Asia-Pacific outlook at a time when Chinese growth is showing slowing momentum,” Rajiv Biswas, chief Asia economist at IHS Global Insight, told Bloomberg TV from Singapore. “In the near-term, the outlook is good and we’re going to see some positive data. I wouldn’t be overly concerned about the declines we’ve seen in the recent past.”

China PMI

China’s Shanghai Composite Index was little changed, erasing gains of as much as 0.4 percent. The nation’s manufacturing expanded at the slowest pace in four months in June as a cash squeeze in the banking system reduced the flow of credit to companies. The Shanghai measure slumped 14 percent last month, capping the biggest monthly loss since August 2009.

The Purchasing Managers’ Index was at 50.1, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. That matched the median forecast of 33 analysts in a Bloomberg News survey and was down from May’s 50.8. Readings above 50 signal expansion.

Growth in China has held below 8 percent for the past four quarters, the first time that has happened in at least 20 years. The World Bank lowered its 2013 expansion forecast for the nation last month to 7.7 percent from 8.4 percent previously. A government gauge of manufacturing fell in June to the least in four months.

Regional Benchmark

The MSCI Asia Pacific Index retreated 9.6 percent through the end of June from the closing level on May 20, which was the highest since June 2008. That left the gauge trading at 12.8 times average estimated earnings compared with 14.6 for the Standard & Poor’s 500 Index (SPX) and 12.6 times for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Futures on the Standard & Poor’s 500 Index dropped 0.2 percent, indicating the U.S. benchmark will decline after gaining last week gains as economic data topped estimates and comments by Federal Reserve officials eased concerns over plans to reduce stimulus.


Sanie Khan

Sanie Khan holds a deep knowledge of the financial markets in Pakistan. Based in Karachi, he has over 20 years of hands-on management experience in financial technologies and managing operations in the financial sector. He was the General Manager at the Pakistan Stock Exchange (PSX) for 17 years. He along-with senior members of Exchange

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)