Asian stocks slid on Wednesday local time after a new report showed a further decline in Chinese manufacturing activity, adding signs of a weakening global economy.
The Shanghai Composite Index posted a 0.6 percent decline to 3,204.38, while Japan’s Nikkei 225 lost 1.1 percent to 30,976.54. Hong Kong’s benchmark index, the Hang Seng, tumbled 2.4 percent to 18,144.92. The Kospi index in South Korea fell by 0.1 percent to 2,583.22.
In Australia, the benchmark S&P/ASX 200 slid 1.3 percent to 7,118.10. New Zealand’s S&P/NZX 50 also recorded a 0.55 percent fall to 11,813.01.
China’s manufacturing purchasing manager’s index (PMI) declined to 48.4 this month from 49.2 percent in April, according to an official report. Analysts say Chinese manufacturers experience the impact of weak global demand and slower-than-expected improvement in domestic consumer spending.
The country’s National Bureau of Statistics also reported that activity in the service sector grew at the lowest rate in four months in May, with the non-manufacturing PMI declining to 54.5 from 56.4 the month before. Jones Lang LaSalle chief economist Bruce Pang said the PMI reading indicated that China might be heading to a “K-shaped recovery.”
“The PMI data reveal that China may heading to a K-shaped recovery. The sluggish domestic demand could weigh on China’s sustainable growth, if there are no efficient and effective policy moves to engineer a broad-based recovery.”
Bruce Pang, Jones Lang LaSalle chief economist
Japan also previously reported a decline in manufacturing output, while South Korea’s production weakened this month.
China, the second-largest economy in the world, eased its strict COVID-19 pandemic policy in January, aiming to accelerate its growth after three years of economic slowdown. Analysts say the economic recovery in China is uneven, with spending on services exceeding activity in manufacturers, property and export-related sectors.
Last month, China’s imports contracted significantly while industrial profits tumbled. Economists cut their forecasts on the country’s gross domestic product growth this year, with multinational bank Barclays predicting a 7.8 percent growth in the second quarter against an earlier estimate of 8.4 percent.
Pang said Chinese regulators should adopt “proactive” fiscal policies, further cut the reserve requirement ratio (RRR) and employ monetary policy tools to support the economy. The Chinese central bank already cut the RRR last March to boost credit growth.
Analysts said China’s faltering economic growth created a “bearish” outlook in the financial market as investors opted for lower-risk assets. Pinpoint Asset Management chief economist Zhiwei Zhang said it was unclear how the Xi Jinping administration would respond to the current market environment, predicting that China will maintain a “wait and see” policy stance for now.
Wall Street ends mixed
Meanwhile, the U.S. stock market ended mixed on Tuesday. The S&P 500 index gained 0.002 percent to conclude the trading session at 4,205.52. The Nasdaq Composite finished at 13,017.43 after posting a 0.32 percent gain. The Dow Jones was the only loser among benchmark indexes, losing 0.15 percent to close at 33,042.78.
Analysts said the market was waiting for whether the U.S. debt ceiling agreement between the White House and Republicans would pass through Congress. IG International strategist Yeap Jun Rong said any obstacle to a “smooth pass-through” of the deal could lower risk appetite among investors.
In addition to anticipation over the debt ceiling crisis outcome, investors are also expecting a possible rate hike by the Federal Reserve in two weeks. The market earlier expected a rate hike pause to happen in June, but stubborn inflation and hawkish comments from Fed officials had lowered expectations about the said pause.
The Fed began its monetary tightening campaign last year to lower the U.S. inflation rate to two percent. Wall Street experienced the impact of the Fed’s consecutive rate hikes, with all three major indexes posting significant losses in 2022.