China's slowdown spreads - MarketWatch

HONG KONG (MarketWatch) â€" As the mainland Chinese economy showed more signs of spluttering last week, it’s getting harder to hear the bullish argument that we are witnessing a benign slowdown engineered by authorities.

While various economists have trimmed fractions of a decimal point off their China GDP forecasts, this hardly tallies with the performance of a widening range of assets feeling the draft as the world’s second-largest economy slows.

Everything from equities, commodities and currencies to even the sales of luxury goods and gambling in Macau are now being impacted.

The jury might be out on a “hard landing,” but that will be small consolation for many investors in Hong Kong picking themselves off the floor after a torrid May. The Hang Seng Index (HK:HSI) lost 11.7% last month, making it the worst performance for the month of May since 1998.

Commodity and currency markets are also reeling, with everything from copper and oil to steel and iron ore having registered steep falls in recent weeks. This should come as little surprise given it was widely commented how Chinese demand drove these prices higher on the upside.

Take a further step back, and commodity-exporting currencies are also being impacted. Currencies from the likes of Australia, Brazil and Indonesia have all fallen up to 10% against the dollar.

Another consequence of the frail-looking mainland Chinese economy is the yuan’s falling out of favor among Hong Kong savers. It no longer looks like a one-way bet, as China’s trade surplus narrows and the U.S. dollar strengthens.

The Hong Kong Monetary Authority announced that the pool of yuan-denominated deposits in Hong Kong fell to 552 billion yuan ($86.6 billion) in April, down 12% from last November’s high.

What troubled investors in data released last week was further confirmation the Chinese economy had yet to bottom. The official manufacturing Purchasing Managers’ Index (PMI) for May fell to 50.4, ending five consecutive months of growth.

There were also further reports of weakness in property, with prices hitting a 16-month low, according to data compiled by SouFun Holdings, the largest local real-estate website.

News that Agile Property Holdings Ltd. (HK:3383)  [(US:AGPYY) said it would cut prices by 25% across 10 projects in Guangdong province also suggests further weakness ahead.

This again might not be new, but as these property corrections become more entrenched, weakness would be expected to show up in consumer spending as people reassess their reduced wealth.

We may now be seeing these secondary effects.

Gambling revenues in Macau, which until now had escaped unscathed by mainland Chinese tightening, are now showing signs of new weakness. Figures released on Friday showed gaming revenue rose just 7.3% to 26.08 billion patacas ($3.26 billion) last month, which is the slowest growth rate since July 2009.