Asia report: Markets mixed as China services growth slows

Equities closed in a mixed state across Asia on Monday, with investors digesting fresh data out of China which showed a marked slowing of growth in the country’s services sector.

In Japan, the Nikkei 225 was down 0.64% at 28,598.19, as the yen strengthened 0.2% against the dollar to last trade at JPY 110.83.

Automation specialist Fanuc was up 0.19%, while among the benchmark’s other major components, fashion firm Fast Retailing was down 1.9% and technology conglomerate SoftBank Group plunged 5.39%.

The broader Topix index lost 0.37% by the end of trading in Tokyo, closing at 1,948.99.

On the mainland, the Shanghai Composite was up 0.44% at 3,534.32, and the smaller, technology-heavy Shenzhen Composite rose 0.74% to 2,414.40.

The unofficial Caixin/Markit services purchasing managers’ index came in at 50.3 for June, which was its lowest level in over a year and down sharply from the 55.1 reading for May.

It was still above the 50-point level that separates expansion from contraction, however, indicating that the services sector was still expanding, albeit more slowly.

“The extent of the June drop is surprising, leaving the PMI below the lows during the outbreak that started in Hubei early this year, though still in a totally different ballpark from the cratering in the first quarter of last year,” said Pantheon Macroeconomics chief Asia economist Freya Beamish.

“The index should soon improve as confidence is boosted by vaccination.

“For now, though, the new orders index was at its lowest in 14 months, though still above 50.”

Beamish said that as Pantheon had forecast following the official PMI, the mid-year softening of services demand had taken the air out of price rises for the sector, with the report suggesting that operating expenses rose “only slightly” in June, while prices charged fell outright for the first time since July last year.

“The labour market has been damaged too, with an easing of pressure on capacities, leading to an implied decline in employment for the first time in four months, though only mild.

“The report suggests, however, that labour supply, as well as labour demand may have been affected, with people leaving jobs due to the uptick in virus cases.”

Beamish said panellists were right to be confident that the virus would be brought under control.

“Vaccines are going in the right direction, fast, meaning that the services PMI should rebound during the third quarter.”

South Korea’s Kospi was ahead 0.35% at 3,293.21, while the Hang Seng Index in Hong Kong lost 0.59% to 28,143.50.

Technology plays were on the back foot in the special administrative region amid fresh fears of a regulatory crackdown from Beijing, with Alibaba down 2.83%, Meituan losing 5.59%, and Tencent 3.57% weaker.

Those fears were stoked by reports from Chinese regulators that ride sharing and taxi app Didi Chuxing had collected user data unlawfully, and ordered app marketplaces to de-list the firm’s software in the country.

That had contributed to the large losses for SoftBank in Japan on Monday, given the firm is a major investor in Didi.

Analysts at RaboResearch noted that the Global Times said the delisting of Didi’s apps in China was put down to “national security” concerns.

“That will play well with any of US Generation Z who put their sparse savings into the initial public offering [last week in New York] - and with anyone thinking we aren’t heading for a global ‘splinternet’.”

Seoul’s blue-chip technology stocks were on the front foot, meanwhile, with Samsung Electronics up 0.5% and SK Hynix rising 0.41%.

Oil prices were higher at the end of the Asian day, with Brent crude last up 0.32% at $76.41 per barrel, and West Texas Intermediate rising 0.37% to $75.52.

In Australia, the S&P/ASX 200 eked out gains of 0.09% to 7,315.00, as finalised data showed retail sales rose a seasonally-adjusted 0.4% year-on-year in May, much higher than the 0.1% improvement indicated in the preliminary reading from the Australian Bureau of Statistics.

Across the Tasman Sea, New Zealand’s S&P/NZX 50 advanced 0.79% to 12,812.32, led higher by airport operator AIAL, which jumped 5.4%.

The company, which operates the country’s largest international airport in Auckland, was riding on the coat-tails of its Sydney counterpart, which rocketed 30% after an infrastructure investment consortium made an opportunistic bid for the ASX-listed operator.

Both of the down under dollars were stronger on the greenback, with the Aussie last ahead 0.13% at AUD 1.3272, and the Kiwi advancing 0.03% to NZD 1.4226.