China stocks tumble, pushing equity valuations below 2015 market lows
Insurance companies and property developers led declines in Shanghai on Monday, as the benchmark index fell 2.5 per cent on the first day of trade in the second half
China’s stock markets snapped back into a declining trend on Monday, with valuations sinking to levels lower than the aftermath of the 2015 crash, dragged by concerns of a trade war with the US and a potential economic slowdown brought on by the crackdown on shadow banking.
The Shanghai Composite Index retreated 2.5 per cent on Monday, giving up gains from a 2.2 per cent rebound on Friday. Monday’s declines have pushed the broad market to a valuation of 10.3 times forward earnings for the next 12 months on a weekly basis, the lowest since December 2014, according to Bloomberg data. Hong Kong’s market was shut for a public holiday.
Large companies, including property developers and insurance companies, paced the declines as traders continued to offload their equity holdings before the release of second-quarter economic growth due out in mid-July, which will provide the first snapshot of China’s economic strength after trade tensions with the US flared up.
While a purchasing managers’ index released over the weekend showed the manufacturing industry was still expanding in June, a sub-gauge of new export orders fell below the line indicating contraction, stoking concern that external demand is weakening.
“All eyes will be on the economic data this month and there’s a lot of downside pressure on the economy on the backdrop of the trade war,” said Wu Kan, a fund manager at Shanshan Finance in Shanghai. “The stock market is still seeking its bottom and we may be pretty close to it now, given the magnitude of the decline in the first half.”
The Shanghai Composite slid 14 per cent in the six months through June, making it the worst-performing benchmark among the world’s major markets, even as its yuan-traded stocks were added to MSCI’s global gauges for the first time in June.