China Market falls on soft factory PMI, trade war woes

Headline indices of the Mainland China equity market declined for third day in row on Friday, 31 May 2019, after release of weaker than expected China's manufacturing data. Meanwhile, ongoing trade fight between the U.S. and China also continues to weigh on markets. At closing bell, the benchmark Shanghai Composite Index declined 0.24%, or 7.11 points, to 2,898.70. The Shenzhen Composite Index, which tracks stocks on China's second exchange, edged down 0.01%, or 0.17 point, to 1,531.86. The blue-chip CSI300 index fell 0.31%, or 11.39 points, to 3,629.79. For May, CSI 300 index fell 7.24% and Shanghai Composite Index dropped 5.8%.

The declines came as China's manufacturing purchasing managers' index (PMI) -- a gauge of sentiment among factory operators -- disappointed for May, questioning the effectiveness of Beijing's stimulus steps.

 

China's official manufacturing PMI for May fell into contraction territory. April's reading was 50.1, which was only marginally above the threshold for expansion, but May's reading was 49.4, which suggests that manufacturing activity in May actually shrank. The most eye-catching sub-index is the "new orders index", which measures domestic manufacturing activity. This came down drastically from 51.4 in April to 49.8 in May. PMI readings above 50 indicate expansion, while those below that signal contraction.

The official PMI survey typically polls a large proportion of big businesses and state-owned enterprises. A separate survey, the Caixin indicator, features a bigger mix of small- and medium-sized firms. The Caixin manufacturing PMI is due on June 3.

The ongoing trade fight between the U.S. and China also continues to weigh on markets, following a recent escalation in rhetoric. Chinese vice Foreign Minister Zhang Hanhui said Thursday that provoking trade disputes amounted to naked economic terrorism. Also, China has reportedly halted soy purchases from the U.S.

Shares of banks and financials were lower, with Industrial and Commercial Bank of China (601398 CH) down 1.1%, at 5.61 yuan, and Agricultural Bank of China (601288 CH) down 0.8%, at 3.68 yuan.

Shares of liquor distiller were also lower, with Kweichow Moutai (600519 CH), down 1.7% at 890 yuan. Wuliangye Yibin (000858 CH) dropped 1.8% to 101.25 yuan. Hangzhou Hikvision Digital (002415 CH) was down 1.4% at 24.84 yuan.

China's rare earth-related firms were higher, with reports raising speculations that the material might be used as a weapon in the trade front. China is willing to meet reasonable demand for rare earths from other countries, but it would be unacceptable that countries using Chinese rare earths to manufacture products would turn around and suppress China, its commerce ministry said. Rare earth-related shares, including Shenghe Resources Holding Co, Beijing Zhong Ke San Huan High-Tech Co and Jl Mag Rare-Earth Co soared.

Among individual stocks, Sichuan Dawn Precision Technology (300780 CH) shot up to the first trading day price gain cap of 44%. The maker of mechanical transmission parts was quoted at 16.68 yuan, up from its offering price at 11.58 yuan. The company raised a total of 3.92 billion yuan in its initial public offering. A total of 34,547 shares worth 0.57 million yuan changed hands today.

CURRENCY NEWS: China yuan softened against greenback on Friday, inline with soft mid-point fixing by central bank and festering trade tensions between Beijing and Washington. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8992 per dollar, 2 pips weaker than the previous fix of 6.8990. In the spot market, the onshore yuan opened at 6.9071 per dollar and was changing hands at 6.9097 at midday, 84 pips weaker than the previous late session close and 0.15% softer than the midpoint.

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