China: Manufacturing activity down to two-year low

<p>The disappointing results are the latest in a string of weak economic data.</p>

A new survey revealed that manufacturing activity in China contracted the most in two years, adding to investors' worries about the world's second largest economy.

The final July reading for Caixin China purchasing managers' index (PMI), a manufacturing index based on a survey of factory purchasing managers, came in at 47.8, lower than the preliminary reading of 48.2. The reading was the lowest since July 2013, when it fell to 47.7. The results come after the release over the week-end of the official PMI, which focuses on larger companies. It fell to 50 in July from 50.2 in June.

Market strategist at trading firm IG Bernard Aw said in a comment the data was not surprising and reinforced the view that there will be further weakness in China's economy.

"I feel that the macro outlook of China – which is probably slowing further – has already been considered by the market."

£1.5 trillion wiped out from the market

The disappointing results are the latest in a string of weak economic data highlighting the country’s struggling stocks, sluggish property market and weak demand at home and abroad.

Chinese stock markets suffered three weeks of continued losses in June that wiped out £1.5 trillion. Drastic government measures were introduced to stop the slide, with the China Securities Regulatory Commission banning investors holding more than five per cent of a company's shares from selling any of their holdings for the next six months.

Other measures introduced earlier include a ban on short-selling, a suspension of initial public offerings and the injection by 21 brokerages of 128 billion yuan (£13 billion) into a stabilisation fund to support the market. 

Chinese authorities also cut interest rates for the fourth time since November and relaxed margin lending rules. 

The latest measures by Chinese regulators also include an investigation into suspicious activity of trading on the mainland. China’s securities regulator said on Friday (July 31st) that it has launched a probe into automated trading and has restricted 34 stock accounts suspected of influencing stock prices as of Monday. 

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.