Factory Data Drags China Stocks Lower

Factory Data Drags China Stocks Lower

Chinese shares witnessed another drop today as Shanghai shed 1.78% on Monday after the manufacturing PMI fell to 49.4 in January. This was lower than the previous month’s 49.7, as well as missing expectations of 49.6. Though the miss owas only minor, the disappointment came from PMI for services, which eased to 53.5. Official data indicated that it slipped to its weakest since 2012.

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Investors were hoping that consumption would take over from industry in China. However, the data has challenged such hopes at least in the near-term. For the eleventh consecutive month, a privately-conducted survey, the Caixin/Markit manufacturing PMI of China indicated shrinking factory activity. Today’s market reversed gains witnessed on Friday in China following Japan’s central bank putting interest rates into negative territory.

According to ANZ’s Chief Economist for China, Li-Gang Liu, the manufacturing sector would not likely to see a turnaround this year. He said that there was already overcapacity and weakening global demand. The Chinese government was also currently focused on tackling pollution, which could further hurt economic growth. The Australian Bank expects that China will cut key reserve requirements in the next few months in response, though recent leaked memos from the People’s Bank of China have suggested no lowering of reserve requirements would be made in the near future.

In 2015, the Chinese government had propped up the stock market. However, so far this year, there are few natural buyers. Investors have been taking every rise in stock prices as an opportunity to lock in profit and exit positions.