China is the second most powerful economy in the world after the United States. It has a GDP of more than $11 trillion and a population of more than 1.2 billion people. For this reason, China is the biggest consumer in the world. It has increased need for raw materials such as copper, corn, and soybeans. As an industrialized country with a young and well-educated population, China has become a destination for global companies. In fact, most of the world’s products are manufactured in the country.
For this reason, a slowing Chinese economy is a major threat that investors take seriously. This is because if the country slows, it means that the output could slow as well. It also means that the countries that export to the country could experience a slowed growth as well.
This is the main reason why Asian markets started the year on a low note. Earlier on, the country released the manufacturing PMI data that disappointed. The number showed that PMI in January contracted to 49.7. This was lower than November’s PMI of 50.2 and the consensus estimate of 50.3. It was the lowest the number has been for more than 15 months. A PMI reading of below 50 is an indication that the industry is contracting.
The number led to a sharp decline in Asian stocks with the Shanghai index declining by 1.30%. The China’s A50 index declined by more than 150 points. This decline also affected other Asian stocks with the Nikkei and Hang Seng declining by 0.50% and 3% respectively.
The China A50 index, which is made of the 50 biggest Chinese companies declined to a low of 10,212 yuan. This was a continuation to the 25% decline experienced in the past one year. On the one-year chart, the price is below the 50-day and 25-day EMA while the Relative Strength Index (RSI) has declined to almost the oversold territory. Looking ahead, as talks between the US and China advance, and with a deal likely to be done, there is a likelihood that the index could bottom-up for the year and start a rebound.