China's Stocks Extend Rout as Factory Data Adds to Economy Woes

Updated on
China Interventions Can't Hold Off PMI Contraction

China’s stocks fell, extending the biggest two-month tumble since 2008, after an official factory gauge slumped to a three-year low and concern grew that government intervention to shore up equities will fail.

The Shanghai Composite Index slid 1.2 percent to 3,166.62 at the close, paring a loss of as much as 4.8 percent. Rallies for large bank and oil shares propped up the stock market, with more than 1,000 companies in the Shanghai and Shenzhen bourses plunging by the 10 percent daily limit. The official Purchasing Managers’ Index was 49.7 for August, down from 50 in July. Numbers below 50 indicate contraction.

“The manufacturing index still shows that the economy is in the process of seeking a bottom,” said Wu Kan, a Shanghai-based fund manager at JK Life Insurance. “The market is unlikely to pick up anytime soon.”

The Shanghai Composite closed near its highest level of the day for the fourth straight session on speculation state-backed funds are using afternoon share purchases to bolster the market before a World War II victory parade this week. The SSE 50 Index of the nation’s biggest stocks rose 0.9 percent, erasing a loss of as much as 4.8 percent. PetroChina Co. and Industrial & Commercial Bank of China Ltd., the two largest members of the Shanghai index, jumped at least 3 percent.

Government Intervention

“Investors may be looking for government intervention,” said Sam Chi Yung, a strategist at Delta Asia Securities Ltd. in Hong Kong. “If the authority does not respond actively, the Shanghai Composite may test 3,000 again."

The government revived its intervention in equities on Thursday to halt the biggest selloff since 1996. The effort to support markets was part of a broader push to ensure nothing detracts from the parade. China’s markets will be closed on Thursday and Friday.

The CSI 300 Index slipped 0.1 percent. Hong Kong’s Hang Seng China Enterprises Index retreated 3 percent, while the Hang Seng Index slipped 2.2 percent. The ChiNext index of small companies tumbled 5.4 percent.

The Shanghai Composite dropped a combined 25 percent in July and August amid concern the economic slowdown is deepening and traders are paring leveraged bets. Margin traders reduced holdings of shares purchased with borrowed money for a 10th day on Monday, with the outstanding balance of margin debt on the Shanghai Stock Exchange falling by 1.5 percent to 673.1 billion yuan ($105.5 billion).

Manufacturing Slump

The Chinese factory gauge fell to the lowest reading in three years as five interest-rate cuts since November fail to revive old growth drivers weighed by overcapacity and sliding prices. The PMI data were in line with a private survey -- the preliminary Purchasing Managers’ Index from Caixin Media and Markit Economics -- that fell to the lowest level in more than six years.

Gauges of technology and consumer-discretionary companies in the CSI 300 slid at least 2.4 percent for the biggest declines among 10 groups. Yonyou Network Technology Co. retreated 6.8 percent. Shanghai Wangsu Science & Technology Co. lost 5.6 percent. Suning Commerce Group Co. dropped 10 percent.

ICBC advanced 7.4 percent,  erasing a 0.5 percent loss. China Construction Bank Corp. jumped 8.7 percent. PetroChina advanced 3 percent.

Mainland shares trade at the most expensive level relative to their Hong Kong peers since July 24, according to a gauge tracking the price gap of the two markets.

China will encourage listed companies to conduct mergers and acquisitions, buy back shares when prices are low and pay higher cash dividends as the government extends efforts to boost share prices, the China Securities Regulatory Commission said. These measures are aimed at increasing the investment value of listed companies and promoting stable and healthy growth of capital markets, the CSRC said in a statement posted on its Website on Monday.

— With assistance by Shidong Zhang

Before it's here, it's on the Bloomberg Terminal. LEARN MORE