China’s stocks swung wildly between gains and losses on Tuesday after their biggest weekly drop since the global financial crisis.
The Shanghai Composite Index was up 2.18% at 4,576 points in late trade, after earlier in the session dropping nearly 5% and extending the loss in the past six trading days (Monday was a holiday) to more than 18%.
The index slid 13% last week, its biggest weekly decline since 2008, amid concern prices are too high ands there’s too much dealing on margin (credit).
The Shanghai Composite Index was down just on 5% just before midday yesterday. It slowly in the afternoon ands regained positive territory.
Margin positions on the city’s bourse fell for the first time in a month on Friday, a sign that leveraged investors are unwinding purchases.
Official newspapers and market websites carried a spate of stories over the weekend, on the holiday Monday and yesterday telling investors everything was OK, that there was nothing to fear and talk of a bubble was wrong.
Investors were so absorbed in the health of the markets (in Shanghai and Shenzhen) that they shrugged off the ‘flash’ report on manufacturing activity from HSBC/Markit.
That showed factory activity among small and medium companies contracting for the fourth straight month in June. But there were some small signs of stabilising.
The HSBC/Markit Flash China Manufacturing Purchasing Managers’ Index (PMI) edged up to 49.6, a three-month high, from 49.2 in May and better than an expected 49.4, but remained under the 50 mark which separates contraction from expansion.
New orders returned to positive territory at 50.4 and new export orders fell at a slower pace, but companies stepped up layoffs. Factories were also forced to cut prices for their products at a faster rate – a suggestion that there is no let up in the deflation that’s gripping Chinese manufacturing at all levels.
“On one hand, the sector shows signs of improvement as output stabilised amid a slight pick up in total new work, while purchasing activity also rose slightly over the month," said Annabel Fiddes, an economist at Markit.
"On the other hand, manufacturers continued to cut staff, with the latest reduction the sharpest in over six years. This suggests companies have relatively muted growth expectations …. and suggests that authorities may step up their efforts to stimulate growth and job creation in the second half of the year,” she added in yesterday’s statement.
