China’s export contraction jolts stock mart investors

SYDNEY — Asian shares and US stock futures skidded on Monday after a shock contraction in Chinese exports pointed to deepening cracks in the world’s secondbiggest economy and raised fears of a sharper slowdown in global growth and corporate profits.

E-minis for the S&P 500 declined 0.8%, in an indication of heightened risk aversion. Spreadbetters also pointed to a weak start for Europe while FTSE futures slipped 0.4%.

Latest data from China showed imports fell 7.6% year-on-year in December when analysts had predicted a five percent rise while exports unexpectedly dropped 4.4%, confounding expectations for a three percent gain.

The disappointing numbers reinforced fears US tariffs on Chinese goods were starting to take a heavy toll on China’s cooling economy.

Softening demand in China is already being felt around the world, with slowing sales of goods ranging from iPhones to automobiles, prompting profit warnings from the likes of Apple and Jaguar Land Rover.

The Australian dollar, a key gauge of global risk sentiment and a liquid proxy for the Chinese yuan, toppled from Friday’s onemonth peak of $0.7235 to $0.7186 after the dismal data.

“We believe trade growth next year will slow significantly on huge uncertainty and high base,” Citi analysts wrote in a note, predicting China’s exports and imports to fall 5.1% and 6.8% respectively this year.

“Significant uncertainty remains as to whether there could be a ‘deal’ after March 1.”

Those concerns sent MSCI’s broadest index of Asia-Pacific shares outside Japan sliding one percent from Friday’s one-anda-half month top for its biggest single-day percentage drop since Jan. 2, with Chinese and Hong Kong shares the worst hit.

Liquidity was generally light during Asian hours as Japan was on public holiday.

Chinese shares were in the red, with the blue-chip index down 0.7%. Hong Kong’s Hang Seng index stumbled 1.5% while Australian shares reversed early gains to end mostly flat.

Some analysts expect Monday’s trade data to provide impetus to Chinese authorities to resolve the trade dispute with Washington.

“You could argue that the worse the numbers are the more incentive it provides to resolve the dispute,” Ray Attrill, forex strategist at National Australia Bank, told Reuters.

“It also amplifies the extent to which they (Chinese policy makers) have to provide stimulus for the domestic economy,” Mr. Attrill added.

The world’s two largest economies have been in talks for months now to try and resolve their bitter trade war, with no signs so far of any substantial progress in negotiations.

Citi analysts said even with the rising probability for both sides to reach an agreement, the tariff and trade disruption appears to have already rippled through the global economy.

“The regional trade growth appears to have slowed substantially after front-loading effect diminished,” they said. —