HONG KONG — Chinese investors might have hoped they could leave behind a year of market turmoil, but the first day of trading in 2016 brought a steep fall in shares at home and across Asia and resurrected old concerns.
Weak manufacturing data for China and worries about the depreciation of the renminbi pushed Chinese shares sharply lower Monday, testing a new market circuit breaker on the very first day it took effect.
The CSI 300 index of blue-chip shares was down 5 percent, setting off the circuit breaker, a mechanism that halts trading in all of mainland China’s markets for 15 minutes. After the break, shares continued to fall, with the Shanghai composite index ending the day down 6.9 percent.
Almost every market in Asia fell on Monday, in part as a reaction to signs of weakness in China, but also because of concerns about geopolitical instability in the Middle East after Saudi Arabia severed diplomatic ties with Iran. The Nikkei 225-share index in Tokyo closed down 3.1 percent, while the Hang Seng index in Hong Kong fell 2.7 percent. Oil prices gained 0.2 percent, after a sharp rise in early trading.
A stronger yen put pressure on Japanese automakers like Toyota and Nissan, as well as other large manufacturers that earn the bulk of their revenues overseas in dollars, euros and other currencies. The yen, seen by traders as relatively safe in times of instability, rose to its highest level since October, trading at 119 yen to the dollar late Monday afternoon.
It was a tough start to a year that analysts said would most likely be characterized by periods of turbulence in Asian equity markets. The slowdown in growth in China and the expectation of rising rates in the United States are both expected to weigh on markets. Analysts said this was the first — but most likely not the last — scare based on flagging Chinese growth and concerns that a depreciation of the renminbi would make debt owned by China’s state-owned companies more expensive.
The trouble on Monday began after the release of weak manufacturing data for China. The Caixin purchasing managers’ index for December, compiled by the market data firm Markit, fell to 48.2, well below expectations and lower than the reading in November. Any rating below 50 indicates a contraction in manufacturing. The Caixin index is a nongovernmental survey of smaller businesses in China; the government index, which focuses on larger companies and was released Friday, also showed a continued contraction.
China’s markets soon tested the new circuit breaker set up after last year’s instability.
“To some degree, whenever you introduce new measures such as a circuit breaker, the market has a tendency to test those mechanisms, so perhaps it’s not completely surprising,” said Julian Evans-Pritchard, China economist at Capital Economics.
He added that the circuit breaker limited liquidity, making it more difficult to get out of trades for the day and therefore potentially pushing markets further down.
Looking forward, Devendra Joshi, an HSBC Asia equity strategist, said that any potential rise in Asian equities for the year would be driven mostly by corporate earnings growth, not by broader improvement in market sentiment.
“This will be the theme for the year,” he said. “There will be more volatility. What happened with today’s P.M.I., you can pin it on that news, but we think this year’s equities will go through these phases.”