September 1, 2011 (Chinavestor) Weakening manufacturing data in China and Europe deflated bulls on the first day of September in Asia. The Hang Seng Index (INDEXHANGSENG:.HSI) gave back 400 points from the open, ending the day a mere 50.5 points or 0.2% higher. The Shanghai Composite Index (SHA:000001) had a similar trajectory except that it opened lower and ended the day in the red. The index opened September with a 11.3 points or 0.4% loss. ZTE Corp. (HKG:0763) and Aluminum Corp. of China (HKG:2600) advanced significantly for the second day in a row. But bargain hunters gave up on China Life Insurance (HKG:2628) after some buying a day before. Chinese airliners, China Eastern Airlines (HKG:0670) and China Southern Airlines (HKG:1055), continued to bleed for a fifth day in a row.
China's manufacturing index was 50.9, just barely above the 50 level, indicating growth. The reading was the weakest in 30 months, indicating slower growth. The same index for Taiwan and South Korea was 45.2 and 49.7, indicating a manufacturing slow down in the greater south east Asian region. Manufacturing activity contracted in Europe at the same time, raising concerns about global economic growth prospects. The Hang Seng Index (INDEXHANGSENG:.HSI) and the Shanghai Composite Index (SHA:000001) fell sharply in the afternoon session when news of contracting Eurozone manufacturing reached Asia.
But strong corporate earnings continued to mitigate negative economic news for ZTE Corp. (HKG:0763), a Chinese telecom equipment maker that reported two days ago. Aluminum Corp. of China (HKG:2600) is back where it was before earnings announcement late last week. Rio Tinto (NYSE:RIO) and Chinalco, parent company of Aluminum Corp. of China (HKG:2600), has a joint venture in Guinea that will come on-stream in mid-2015.
But weak earnings continue to hurt the largest China Life Insurance (HKG:2628). The largest Chinese insurer reported a 28% drop in earnings following large claims payout. China Eastern Airlines (HKG:0670) and China Southern Airlines (HKG:1055) succumbed to profit taking again. China Southern Airliners advanced over 35% since mid June and have been subject to a correction.
Most components of the Xinhua 25 Index fell on Thursday boding ill for its trailing ETF, the iShares FTSE/Xinhua China 25 Index (NYSE:FXI). Stocks that fell outnumbered those that advanced two to one among 25 components of the index. But the picture was different among small cap China stocks in Asia. Most components of the Guggenheim China Small Cap ETF (NYSE:HAO) advanced, a complete opposite of what large cap stocks did.
Outlook remains dim for Chinese ADRs or China stocks listed in the U.S. given the negative direction for China stocks in Asia. With most earnings behind, investors will focus on economic news in the upcoming weeks.
"Traders get a reading on domestic manufacturing with the ISM Manufacturing Index at 10:00 AM ET, which is also when monthly construction spending numbers are scheduled to arrive. Prior to that, weekly jobless claims and revised second quarter productivity and cost data are due at 8:30 AM ET. Monthly motor vehicle sales will be released intermittently today, but same-store retail sales are already hitting news wires. Most retailers have reported stronger-than-anticipated results." Market Update at 8:30 A.M.