NZ shares join global stock rout as weak manufacturing points to slowing Chinese economy

Tuesday 5th January 2016

New Zealand's benchmark S&P/NZX 50 Index dropped 1.1 percent, joining a global slide in equity markets after figures showed a worsening contraction in Chinese manufacturing.

The S&P/NZX 50 Index fell 70.09 points to 6254.17 in the first trading day of 2016, having climbed about 13 percent in 2015 to end the year at a record 6324.26.

The Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI), fell to 48.2 in December, from 48.6 in November, below the 50-point level that separates contraction from expansion. December's low marks the 10th straight month of contraction. Earlier last month, Chinese government figures showed the official manufacturing PMI had increased slightly to 49.7 from 49.6 in November, still the fifth month of contraction. China's central bank fixed the yuan at a 4-1/2 year low against the greenback at the end of December, a move that should offer support for manufactured exports.

Chinese stocks plunged yesterday, with the Shanghai Composite Index down 6.9 percent, while the large-cap CSI 300 Index plummeted 7.02 percent, triggering a trading halt. Chinese regulators introduced 'circuit-breakers' to the CSI 300 yesterday, where a 5 percent move up or down triggers a 15-minute trading pause. Trading is halted for the day when the market moves 7 percent or more.

Stock markets across Asia were weak, with Australia's S&P/ASX 200 Index falling 0.9 percent, and Hong Kong's Hang Seng closing 2.7 percent lower. Wall Street also took a hit, with the Nasdaq Composite Index falling 2.1 percent, the Dow Jones Index declining 1.6 percent and the Standard & Poor's 500 Index down 1.5 percent.

"We are seeing some reaction here, but the market should hold up relatively well," said Shane Solly, director, portfolio manager and research analyst at Harbour Asset Management. "That doesn't mean we won't go down, but we won't feel it to the same degree - the New Zealand market is relatively defensive. There's going to be some stock-specific reaction."

China's fall yesterday was triggered by more than just weak data, Solly said. At the beginning of July last year, the China Securities Regulatory Commission banned company bosses, senior managers and investors who own stakes in businesses exceeding 5 percent from selling their shares on the secondary market for six months, after a sell-off which wiped more than US$3 trillion of value off its main exchanges.

"One of the big triggers for the Chinese market unwinding was a number of shares which had previously been restricted from transacting became unrestricted, so people were able to sell stock they had been unable to sell for some period of time," Solly said. "There was certainly a strong reaction as the market absorbed stock which had been unavailable for a period of time."

While the year has started on a down note, Solly said he "wouldn't subscribe" to the theory that a weak first day predicts a weak year ahead.

BusinessDesk.co.nz

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