Asian stocks dropped on Monday, after their best month since May 2009, as industrial companies declined following data signalling a contraction in Chinese manufacturing.
The MSCI Asia Pacific Index fell 1.1% to 132.95 as of 4.16pm in Hong Kong (3.16pm Thailand time). The measure rallied 8.6% in October as China cut interest rates and the European Central Bank hinted at potential extra stimulus, while US and Japanese policy makers kept their monetary policies accommodative.
China’s first key indicator this quarter, an official factory gauge, missed analysts’ estimates, signalling that the manufacturing sector has yet to bottom out as global demand falters and deflationary pressures deepen.
“While you get the ebbs and flows from this monthly data relative to expectations, the overall outlook is one of timid and sluggish activity in the Chinese economy,” Chris Green, an Auckland-based strategist at First NZ Capital, said by phone. “We’re not expecting a protracted downturn but it will require further policy response from the PBOC to stabilise the growth profile in China. The bigger thing this week is the US jobs data, which could reinforce the prospects of a December move by the Fed.”
A private gauge of Chinese factory activity in October came in at 48.3, higher than the previous month’s reading but still below the 50 level that denotes the border between expansion and contraction.
Hong Kong’s Hang Seng Index lost 1.2% and the Shanghai Composite Index slid 1.7%. The gauge last month posted its biggest monthly advance since April as the Chinese government took measures to end a US$5 trillion rout and policy makers introduced stimulus to boost economic growth.
Japan’s Topix index slid 2% after the yen gained for a second day against the dollar. While the Bank of Japan refrained from easing monetary policy last week, the Nikkei newspaper reported that the government may introduce additional budget measures if third-quarter gross domestic product, which will be announced on Nov 16, shows the economy needs aid.
Singapore’s Straits Times Index slid 1%, while South Korea’s Kospi index added 0.3%. Australia’s S&P/ASX 200 Index lost 1.4%.
The purchasing managers’ index (PMI) was unchanged at 49.8 in October, the National Bureau of Statistics said Sunday, compared with the median estimate of 50 in a Bloomberg survey. The non- manufacturing PMI, a barometer of services and construction, fell to 53.1 from 53.4 in September, the weakest since December 2008.
“I’m struggling to see catalysts to encourage the market to take this rally to the next level,” said Tony Farnham, a strategist at Patersons Securities in Sydney. “China’s PMI numbers were underwhelming. Manufacturing will probably remain weak as China tries to rebalance its economy away from manufacturing and into services.”