China PMIs sink Asia equities
Overnight, US markets enjoyed a positive day notable for strong flows into technology stocks. The S&P 500 and Nasdaq closed at record highs as the S&P 500 rose 0.43% and the Nasdaq climbed by 0.90%. The Dow Jones appeared to be suffering some Hurricane Ida effects as it finished 0.16% lower. US after-market futures on all three are slightly higher in Asia, rising around 0.10%.
The story in Asia is very different, though. Regional markets were always likely to struggle after China announced limits on children’s online game time, with China tech stocks sure to have been in the firing line. But a barely expansionary China Manufacturing PMI and the surprise tumble by the Services PMI sealed the region’s fate, and equity markets have mostly headed south.
After reasonable data releases, Japan and South Korea have recovered their post-China data losses, the Nikkei and Kospi rising 0.45% today. However, in China, the Shanghai Composite has fallen 0.75%, with the CSI 300 and Hang Seng tumbling by 1.45%. Singapore is 1.40% lower, with Taipei falling 0.65%, Jakarta by 0.25%, and Bangkok is flat. Malaysia is on holiday. Australia has taken its cues from New York, and post a solid current account release, the ASX 200 and All Ordinaries are 0.40% higher.
European equities are likely to look at China as a localised problem today and will likely push higher at today’s open. Similarly, I see nothing to stop the music playing in New York; that will have to wait for Friday’s payroll data.
Despite the endless optimism of the dip buyers, the dead cat bounce may be with us for some time to come in China. With a seemingly new intervention by the China government in a new sector each day, it is clear that regulatory risk is not going away anytime soon. If China’s economy is indeed slowing as well, the picture becomes darker once again, as it does for its more correlated regional neighbours. One bright spot is that a slowing economy in China will prompt stimulus measures from the central government, potentially limiting the fallout on equities.