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Global Markets Tumble after Chinese Manufacturing Data

Global Markets Tumble after Chinese Manufacturing Data
Sep 02, 2015 By Simon Herrmann

The ASX200 is set to fall this morning again as global markets plummeted overnight following China’s release of the weakest manufacturing data in five years. However futures indicate a potentila recovery in the afternoon.

Chinese Manufacturing Activity Contracts Further

The official Purchasing Manager’s Index (PMI), an index about manufacturing activity for large industrial enterprises, fell to 49.7, below the reading of 50. Any reading above 50 means expansion while a reading below 50 indicates contraction. The Caixin/Markit PMI fell to 47.3 down from 47.8 in July, the lowest level in five years. The Caixin PMI focuses on small and medium size businesses.

A set of disappointing data in the most recent months has caused panic selling on global equity markets as investors fear the slowing Chinese economy will harm the global economic outlook. The Chinese Services PMI came in at 53.4 showing that the services sector and non-manufacturing business remains robust. The Chinese government has emphasises several times that China is transitioning to a consumer- and service-oriented economy. Investment and exports needs to give wat to growth driven by consumption.

Global market selloff: As it happened

The global selloff commenced in Asia yesterday after China released the weakest manufacturing data Shanghai stock fell temporarily more than 4.5% but recovered slightly during afternoon trade to finish the session 1.23% lower. Hong Kong closed the session at 21,185.43 points, 485.15 or 2.24% lower. The Hang Seng Index hit a high of 28,588.50 in April and is therefore nearly 26% below its 2015 peak. The common definition of a bear market is a fall of at least 20%.

European markets declined sharply as well as investors joined the selling that commenced in Asia. The German DAX fell 2.4% to close at 10,015.57 points. The index has now erased almost all of its spectacular gains that it achieved in the first quarter of the year. The U.K.’s FTSE100dropped 3% after being closed for a holiday on Monday. The Stoxx 600 index, which comprises 600 large mid and small capitalisation companies across 18 European countries, dropped 2.7%. The year-to-date change has shrunk to 3%.

As we are looking across the Atlantic to the U.S. the S&P500 fell nearly 3% while the Dow Jones Industrial Average shed 2.8%. The technology focused Nasdaq declined 2.9%.

The ASX 200 is set to experience another day of broad selling. While international futures indicate some support in today’s session, our local market might be able to find some support around the 5,000 mark. However investors will closely watch today’s GDP data as well as trading activity on the Shanghai Composite Index which commences trading at 11:30am (AEST). Over the past few weeks Wise-owl has provided subscribers with several updates as to what to do in the current market conditions and outlined the most suitable course of action.

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Simon Herrmann Author: Simon Herrmann Sep 02, 2015

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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