European stock markets have opened with negative figures on the first trading day of 2016, triggered by weak Chinese manufacturing data and Chinese stock market trading being temporarily halted.
Following the release of weak manufacturing figures, with the Caixin PMI at 48.2 basis points,Chinese blue chip index CSI 300 slumped by 7%, leading to a temporary halt of trading activities.
Sanjiv Shah, CIO at Sun Global Investments, comments on the events: “The New Year has started with Asian and European stock markets sharply lower. The Shanghai Composite Index fell sharply and trading was halted briefly. Chinese stocks are also weak as markets anticipate the likely lifting of the ban on short selling which is due next week. China’s weakness has affected other indices in Asia with most markets down about 2% this morning.”
The Chinese slump was followed by negative reactions across European stock markets, with the Dax dropping by 3% as markets opened. The CAC40 also fell to -2.48%, while the FTSE100 declined by -2.14%.
Matthew Sutherland, investment director Asian Equites at Fidelity International, comments:“Equity markets in general are likely to be volatile this year – we’d better get used to it. It’s important that investors don’t panic on weak days, but continue to take a disciplined and calm approach to investing. This is particularly true with regard to China. Yes, China’s growth is slowing, but the quality of that growth (in other words more consumption and less debt-fuelled investment) is far more important, and the difficulties are more than discounted in cheap valuations. And for equity investors, the really good thing is that the Chinese stock markets are very broad, which enables us to find lots of great bottom-up ideas irrespective of the macro environment.”
Frederik Kunze, analyst at NordLB also cautions against an overly pessimistic outlook on China. “The bottom line is that we would warn investors of over interpreting today’s weak PMI figures. The macroeconomic transition of the Chinese economy continues, as is reflected in the official manager surveys and this will continue to put pressure on the industrial sector. Besides, the Caixin PMI index is only based on spot checks among 420 companies.”
“In this context, we believe it is worth focusing on the official figures on economic activity in December (particularly industrial production and retail profit figures) as well as the GDP figures of the fourth quarter, which will be presented by the NBS Peking on 19 January” he adds. “We maintain our assessment of a robust economic growth path, which doesn’t exclude persistent volatility on financial markets” Kunze concludes.