World Economy

China, the Next Market Scare

China, the Next Market ScareChina, the Next Market Scare

The key market demand pulling the US, Europe and Japan out of recession is now the source of bad news. China is growing, but by how much is a crucial question, New Europe reported.

Stock markets in Asia tumbled following news that China’s manufacturing activity is in a 15-month low. Japan’s Nikkei index dropped by 0.6%, with more positive domestic news easing downward pressure from China. On Wall Street, lower corporate earnings reports were reflected on three major US indexes. Europe is following the trend, with London’s FTSE, Germany’s DAX  and France’s CAC 40  opening down.

The China Manufacturing Purchasing Managers’ Index indicates manufacturing contraction. Bad news from other Asian economies abound, with South Korea recording its weakest growth in six years.

The Australian dollar slumped to a six year low, reflecting gloomy prospects in an economy very much dependent on commodity exports to China. Markets are now expecting government reactions in China, beginning with lower interest rates. Meanwhile, some Japanese investors have used the recent market rout in China as a buying opportunity, reasoning that growth opportunities there make battered Chinese equities worth acquiring.

Japan’s Dai-ichi Life Insurance Co. bought Chinese stocks after markets peaked in mid-June by using cash made from trimming some holdings as shares surged earlier in the year, said Koya Iwabuchi, the company’s general manager of equity investment.

Iwabuchi said foreign investors in mainland-listed stocks generally understand “risks unique to China, albeit to a varying degree.” Trading suspensions affected about a fifth of Dai-ichi’s China stocks at one point. Dai-ichi started investing there in 2006 as part of the Qualified Foreign Institutional Investor program. For Japanese investors, China is a relatively small but increasingly important market. Holdings of Chinese stocks by Japanese investors increased 67% to ¥1.6 trillion ($12.9 billion) at the end of 2014 from a year earlier, according to Bank of Japan data.