China Stock Turmoil 2015

China stocks decline after weak factory output, escalating corruption probe

PUBLISHED : Monday, 02 November, 2015, 9:56am
UPDATED : Monday, 02 November, 2015, 7:38pm

Chinese stocks declined further on Monday after two separate gauges showed the country’s manufacturing sector remain in contraction territory, while the government targeted top fund manager and company executives in an escalating crackdown on corruption.

Hong Kong’s Hang Seng Index dropped for a fourth straight session, down 1.2 per cent to 22,370.04. The Hang Seng China Enterprises Index fell 1.5 per cent to 10,240.33.

The benchmark Shanghai Composite Index declined for a second consecutive day, off 1.7 per cent to 3,325.09. The large-cap CSI300 retreated 1.6 per cent to 3,475.96. The Shenzhen Composite Index lost 1.3 per cent to 1,987.97 while the Nasdaq-style ChiNext Index shed 1.9 per cent to 2,432.04.

The preliminary Caixin China Manufacturing Purchasing Managers’ Index (PMI), a closely watched measure of the nation’s manufacturing activity, showed a better-than-expected 48.3 in October, from 47.2 in the previous month. But the index was still below the 50-mark separating expansion from contraction and marked an eighth straight month of contraction.

Over the weekend, China’s official manufacturing PMI remained unchanged at 49.8 for October. The reading has shrunk for a third month in a row.

“In our view, it (official PMI) demonstrates continued sluggishness in the manufacturing space,” analysts from Bank of America Merrill Lynch said in a Monday report.

They added the data suggested the economy is facing continued growth headwinds, including the deceleration in the industrial sector and weak investment demand.

In addition to concerns over weak factory activity, investors also weighed China’s apparent escalating moves to clamp down on suspected market manipulation and insider trading.

Chinese police have detained Xu Xiang, general manager of top hedge fund Zexi Investment, on charges of insider trading and market manipulation. Meanwhile, Shanghai police arrested two foreigners who allegedly manipulated stock index futures on the Shanghai Stock Exchange in June and July, state-owned Xinhua News Agency reported.

Several stocks that Zexi Investment has invested fell by the 10 per cent daily limit, including Shanghai-listed real estate developer Deluxe Family and IT service provider Daheng New Epoch Technology.

Chinese brokerage firms were also broadly weaker. Haitong Securities fell 3.2 per cent and 2.7 per cent in Hong Kong and Shanghai respectively, closing at HK$13.14 and 14.44 yuan. Citic Securities dropped 1.3 per cent to HK$16.6 in Hong Kong and 1.8 per cent to 15.58 yuan in Shanghai.

Agricultural Bank of China, one of the country’s largest state-owned lenders, saw its Hong Kong-listed stock tumble 2.5 per cent to HK$3.1. Its Shanghai-traded shares shed 0.6 per cent to 3.12 yuan, after reports that the bank’s president Zhang Yun had been taken away to “assist” in an investigation.

On the same day, the Communist Party’s top disciplinary watchdog announced that Zhu Fushou, general manager of Dongfeng Motor Corporation, was being investigated for suspected severe violation of party disciplines.

Dongfeng Motor fell 1.4 per cent in Hong Kong to HK$11.08.

Among the gainers, luggage maker Samsonite advanced 1.7 per cent HK$23.35 after the company posted a 9.3 per cent increase in third-quarter sales. Sales increased US$58.4 million year on year, with a 10.1 per cent gain in Asian sales contributing to the bulk of that gain. North American sales rose 2.2 per cent while European sales gained 18.7 per cent.

Turnover in Hong Kong’s main board hit HK$67.4 billion, compared with Friday’s HK$69 billion. In Shanghai, turnover also shrank to 286 billion yuan, from 308 billion yuan in the prior session.

Analysts from Core Pacific Yamaichi International said Hong Kong markets may experience some volatility until there are some positive drivers from overseas markets.

Meanwhile, Louis Tse, a director at VC Brokerage, said investors may be closely watching whether the yuan makes it to the International Monetary Fund’s reserve currency basket this month and the interest rate hike decision in the US.