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After a tumultuous 2015, China’s stock markets started the New Year on an equally shaky footing. Share prices plunged during Monday’s trading, triggering the use of new legislation which halted trade. The Shanghai Composite closed 6.9% down, while the Shenzhen Composite shed 8.2% during Monday’s trading.
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Our regular readers will be aware that the risk of a Chinese hard landing has long been a feature of our global economic forecasts. By the beginning of 2015 it was clear to us that those risks were crystallising, and we made a hard landing in China our central scenario. At that time, our view ran counter to consensus and we were far more pessimistic than most.
However, following the wild gyrations in China’s equity markets last summer and the unexpected devaluation of the renminbi last August, sentiment regarding the world’s most populous nation deteriorated markedly and growth forecasts drifted lower, bringing them closer to our own view.
Last Friday’s release of weak manufacturing data appears to have fuelled these concerns. According to China’s official PMI, manufacturing activity contracted for the fifth consecutive month in December. Combined with the imminent expiration of a ban on equity sales by large shareholders (one of the many measures imposed last summer in order to stem stock market losses), this has generated a turbulent start to the New Year.
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