Unhappy New Year - Market rout on China slowdown

The first day of the new financial year started with a selling spree among banks and miners as Chinese economic data disappoints investors.

The Australian stock market extended losses to more than 2 per cent in late trade on a rout in banking stocks after the release of more official data pointing to a slowdown in Chinese growth coupled with a negative lead from Wall Street. 

At 1525 AEST, the benchmark S&P/ASX200 index tumbled 2.08 per cent to 4,702.7 points, while the broader All Ordinaries index lost 1.95 per cent to 4,682.4 points.

China's official PMI showed manufacturing activity slowed in June, while a second manufacturing read by HSBC hit a nine-month low. 

IG market analyst Stan Shamu said that given the recent volatility in China, investors would have  wanted to see a solid reading to prevent a further sell-off.

"Additionally, comments by China’s President Xi Jinping hinting at tolerating slower growth continued to emphasise that astronomical growth is no longer China’s main priority," he said.

He was reported by a State media outlet as saying, "officials shouldn’t be judged solely on boosting gross domestic product" and, "China won’t sacrifice the environment and social development to ensure short-term growth".

CMC Markets senior trader Tim Waterer said China's weak manufacturing results put markets across Asia on the defensive to start the new month.

"While the official manufacturing data came in barely above 50, it seemed to be the HSBC final manufacturing number of 48.2 which exacerbated the selling with traders reacting to the reading below the psychological 50 level," Mr Waterer said. 

"With the idea of September QE tapering in the US having been brought back into the mix last Friday, today’s figures pointing towards a Chinese slowdown were not exactly what the doctor ordered from a risk viewpoint.

"Subsequently higher-yielding positions were unwound with global growth concerns back in the spotlight."

Evan Lucas, also an analyst at IG, said the local market could also have been rattled by the United States' benchmark S&P 500 contraction for June.

"The last month was the first time in eight months the S&P recorded a negative finish (the ASX on the other hand has registered three of the last four months in the red) as Fed tapering talk puts the brakes on the world’s largest markets," Mr Lucas said. 

At 1205 AEST, financials led the market losses, with the big four banks in the red.

Commonwealth Bank declined 1.79 per cent $67.94, while ANZ Banking Group lost 2.31 per cent to $27.92.

National Australia Bank shed 2.43 per cent to $28.96, while Westpac Banking Corporation retracted 2.93 per cent to $28.035.

Investment bank Macquarie Group lost 3.85 per cent to $40.26.

Resources stocks were mostly lower, with the major miners going either way.

Rio Tinto dropped 1.11 per cent to $51.79, while BHP Billiton decreased 1.24 per cent to $30.98.

Fortescue Metals lost 1.48 per cent to $2.995.

Whitehaven Coal added 0.87 per cent to $2.32, while Newcrest put on 2.13 per cent to $10.08. 

In the energy sector, Santos declined 2.15 per cent to $12.26, Oil Search fell 1.42 per cent to $7.62 and Woodside retracted 1.34 per cent to $34.54.

The retail sector also took a hit. 

Wesfarmers fell 2.83 per cent to $38.48 while Woolworths gave up 2.04 per cent to $32.14.

Myer retracted 1.68 per cent at $2.34 while rival David Jones shed 1.96 per cent to $2.50.

Harvey Norman contracted 3.33 per cent to $2.465, while JB Hi-Fi lost 2.86 per cent to $16.33.

In media, Fairfax Media fell 2.53 per cent to 48.25 cents, while rival News Corp shed 0.22 per cent to $31.40.

Ten Network lost 0.91 per cent to 27.25 cents.

Southern Cross Media put on 1.4 per cent to $1.445, while Seven West dropped 0.53 per cent to $1.89.

Meanwhile, blue chip Telstra retreated 0.84 per cent to $4.73, while Qantas lost 1.3 per cent to $1.3325.

In Australia, the market on Friday fell on the last day of trade in the financial year as cautious investors sold mining and insurance stocks.

Australia's share market gained 17 per cent over the past year, but the final week of 2012/13 proved a roller coaster ride as global markets worried about an end to US stimulus measures.

The benchmark S&P/ASX200 index on Friday was down 8.7 points, or 0.18 per cent, at 4,802.6 points, while the broader All Ordinaries index was down 9.4 points, or 0.2 per cent, to 4,775.4 points.

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