Friday, December 11, 2015

Manufacturing Leads Stock Market Decline

This month’s stock market rout focused initially on manufacturing, materials, energy, and mining. Only in the last two days has the decline caught up to tech and retail stocks. The Australian stock market, heavily dependent on materials used in manufacturing, has taken the biggest hit this month. Apart from stocks, there have been sharp declines in oil, iron ore, and the yuan, all closely tied to manufacturing.

The declining yuan and other inflationary factors should in theory support the Chinese stock market, but that is a market that at this point is controlled more by a tangled knot of government interventions than by market forces. We saw another example of this today as one of China’s most prominent business executives disappeared today without any public explanation. Reportedly he was taken away by police, and the timing of the arrest suggests that he was suspected of selling stocks last week during a run-up in the Chinese stock market. The rumors reminded would-be stock investors that they too might be taken away (or their investment funds frozen) if they someday try to cash out of their “successful” stock investments, one of the many contradictions in the current Chinese stock market. The associated jitters helped drive Chinese stocks lower again today.

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