Chinese Stocks Fall for Second Day After Manufacturing Contracts

China’s stocks dropped for a second day on concern the economic slowdown is deepening after official data showed manufacturing contracted last month.

The benchmark index slid 1.7 percent to 3,152.79 at 9:33 a.m. local time, dragged down by industrial and consumer companies reliant on economic growth. The official Purchasing Managers’ Index was 49.7 for August, matching the median estimate in a Bloomberg survey and down from 50 in July. Numbers below 50 indicate contraction.

The CSI 300 Index dropped 3.1 percent. Hong Kong’s Hang Seng China Enterprises Index retreated 0.7 percent. The Hang Seng Index slipped 0.3 percent. The Shanghai gauge plunged 12 percent last month, adding to July’s 14 percent tumble. The measure, where low-priced banks have some of the biggest weightings, trades at 16 times reported earnings.

The Chinese factory gauge fell to the lowest reading in three years as five interest-rate cuts since November fail to revive old growth drivers weighed by overcapacity and sliding prices. The PMI data were in line with a private survey — the preliminary Purchasing Managers’ Index from Caixin Media and Markit Economics — that fell to the lowest level in more than six years.

China will encourage listed companies to conduct mergers and acquisitions, buy back shares when prices are low and pay higher cash dividends as the government extends efforts to boost share prices, the China Securities Regulatory Commission said.

Boosting dividends and encouraging M&A are aimed at increasing the investment value of listed companies and promoting stable and healthy growth of capital markets, the CSRC said in a statement posted on its Website on Monday.

Margin traders reduced holdings of shares purchased with borrowed money for a 10th day on Monday, with the outstanding balance of margin debt on the Shanghai Stock Exchange falling by 1.5 percent to 673.1 billion yuan ($ 105.5 billion).

Source: Bloomberg