MARKETS SPECTATOR: ASX China shock

Two measures of China’s manufacturing sector, suggesting the world’s second largest economy is contracting, have spooked ASX investors.

The S&P/ASX200 Index fell as much as 1.8 per cent after two gauges of Chinese manufacturing dropped in June, signaling that Australia’s biggest trading partner’s manufacturing sector may be contracting.

At 1438 AEST the index was down 75.791, or 1.6 per cent, to 4726.80, after falling as low as 4714.80. China’s official Purchasing Managers’ Index dropped to 50.1, the lowest level in four months. HSBC’s purchasing managers index was 48.2, the weakest since September. Readings below 50 signal an economic contraction. That may mean less demand for Australian minerals such as iron ore and coal, essential ingredients for Chinese steel mills.

At 1438 AEST shares in BHP, the world’s biggest mining company, had dropped 32 cents, or 1 per cent, to $31.05. Rio Tinto, the world’s biggest iron ore miner, had fallen 52 cents, or 1 per cent, to $51.85. Iron ore miner Fortescue was down 5 cents, or 16 per cent, to $2.99.

Utility shares were among the index’s biggest declines. The utility sub index was down 2.5 per cent at 1446 AEST. Origin Energy slipped 37 cents, or 2.9 per cent, to $12.20 after it agreed to pay $659 million for coal and hydroelectricity power generator Eraring Energy. Origin rival AGL decreased 39 cents, or 2.7 per cent, to $14.09.

Financial stocks fell. The sub index for such shares was down 1.9 per cent at 1451 AEST, perhaps on gloomier forecasts for the economy and the risk which that may pose for creditors repaying their debt, particularly in the mining and manufacturing sectors. National Australia Bank dropped 67 cents, or 2.3 per cent, to $29.01. Westpac fell 81 cents, or 2.8 per cent, to $28.07.

Supermarket retailer at 1452 AEST Woolworths slid 58 cents, or 1.8 per cent, to $32.23. The stock has gained 21 per cent in the last 12 months compared with the 14 per cent increase in the index during the same period.