China Stocks Pull Asian Markets Lower 

Japanese-shares

Investors are concerned about both a slowdown in China and this week’s U.S. Federal Reserve meeting

China shares finished lower in tumultuous trading Monday, as weak data on Chinese factory output pulled prices down despite apparent efforts by Beijing to prop them up.

The Shanghai Composite Index finished off 2.7%, paring losses in the last half hour after being down as much as 4.7% during the afternoon session. Markets elsewhere were mixed; the Nikkei Stock Average fell 1.6%, led lower by shares of cellphone carriers, following Prime Minister Shinzo Abe’s comments on reducing phone bills.

A massive selloff in August had already left many stock benchmarks in the region off more than 10% from recent peaks. And while markets found sturdier footing last week—shares in Shanghai, Hong Kong and Japan rebounded after a number of down weeks in a row—volatility was returning to Chinese domestic shares, a pressure point for neighboring markets.

On Sunday, data showed China’s factory output and fixed-asset investment were both weaker than expected in August, underlining challenges Beijing faces in pushing the economy to reach its full-year economic-growth target of about 7%.

“It’s a similar story to other recent data we’ve seen,” said Angus Nicholson, market analyst at brokerage IG. “The China data was quite negative. It’s a continued mixed story of a two-speed economy.”

Some 1,417 stocks trading in Shanghai and Shenzhen fell by the 10% daily limit set by regulators Monday, the most since Aug. 25, when 1,968 stocks were limit-down and the Shanghai market dropped 7.6%, according to database provider Wind Information Co.

The losses came even as analysts suspected Beijing of propping up the market again: An index of Shanghai’s largest 50 stocks, mostly state-owned enterprises, was up 1.5%.

Chinese authorities “are pretty sensitive around this week,” said Mr. Nicholson. The U.S. Federal Reserve meets later this week and is expected to announce on Thursday whether it will raise interest rates this month.

Part of the reason China’s central bank devalued the yuan in mid-August, Mr. Nicholson said, was to pre-empt a Fed rate increase. “If the U.S. dollar strengthens, you could get a big call on getting more renminbi out of China converted into U.S. dollar assets,” which is not what authorities want, he explained.

Underscoring investor concerns toward China’s volatile stock market, index provider FTSE Russell decided early Saturday Asia time against adding mainland-listed shares to its global indexes. The decision was a further blow to China’s efforts to attract global capital; MSCI Inc. in June also said it wouldn’t include the stocks, known as A shares, in its widely followed emerging-market index.

Australia’s S&P ASX 200 ended up 0.5%; Hong Kong’s Hang Seng Index finished down 0.3%.

Investor confidence that the Fed won’t raise rates on Thursday is growing. In a survey released Friday, a majority of economists polled by The Wall Street Journal said it won’t.

Stock-market volatility in the U.S. has eased in the past two sessions; Fed officials have said they will consider recent market turbulence and the outlook for the global economy when making their decision.

Asian shares actually started higher Monday, before China shares took a dive. Late Monday in Asia, U.S. stock futures were up slightly. U.S. stocks closed higher Friday, capping their biggest weekly gain in nearly six months.

In Japan, telecom stocks fell after Mr. Abe instructed the communication ministry to consider ways to lower cellphone fees that are becoming a burden for households. NTT DoCoMo Inc. (9437.TO) lost 9.8% to 2,202.5 yen, KDDI Corp. (9433.TO) dropped 8.6% to Y2,760.5 and SoftBank Group Corp. (9984.TO) shed 5.5% to Y6,154.

The prospects for an extension of Japan’s easing program are limited as its central bank starts a two-day meeting today.

Still, traders were refraining from aggressive trading in case comments that shed light on stimulus further down the line comes out from the meeting.

“I’d bet on more Japanese quantitative easing because of deteriorating data in East Asia, and 50 per cent of Japan’s exports go to east Asia,” said Christopher Wood, CLSA’s managing director of equity strategy.

The Nikkei is now down roughly 14% from its late-June peak, and has suffered most of shares in the region with a 4.9% month-to date loss.

In China, the Shanghai Composite is off nearly 40% from its June peak, as the government continues to try to cheer up investors with positive rhetoric.

On Sunday, a blueprint released by Chinese authorities outlined plans to enhance state companies’ returns by letting them add private investors and to improve their competitiveness overseas by making them larger. The plan represents a modest adjustment to China’s brand of state capitalism.

It gave no definitive time frame but said “decisive results” must be seen by 2020.

Currencies gave up earlier gains to trade near flat, but the Japanese yen was up 0.3% against the U.S. dollar, and is expected to rise as expectations grow for the Fed to hold back on raising rates.

Source: WSJ – China Stocks Pull Asian Markets Lower

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