A huge slump from China’s leading stock market indices since mid-June could have serious implications for the Chinese economy and commodity prices, which in turn mean UK-based investors must remain on their guard.
“Although China is still targeting – and publishing – GDP growth rates of around 7%, weak rail traffic, steel price, electricity consumption and freight shipment figures all seriously question those official numbers and suggest Chinese stock prices may have got ahead of themselves,” says Russ Mould, AJ Bell Investment Director. “Worries over Chinese economic strength mean oil, copper and iron ore prices are falling again and this could hamper the UK stock market. Energy and mining stocks represent 21% of the FTSE 100’s market capitalisation, as well as 23% of forecast aggregate profits and 30% of total expected dividend payments for the index, according to consensus estimates for 2015.”
Notes for Editors
- A full spreadsheet outlining FTSE 100 earnings by company and sector is available on request. Aggregate pre-tax income for 2015 is expected by the analysts’ consensus to reach £159.7 billion, a fraction below 2012 levels.
- Brent crude oil, iron ore and copper have all fallen by 18% to 20% from their year highs to trade at or near six-year lows.
- The Shanghai and Shenzhen Composite indices are down by 32% and 40% from their 12 June peaks.
- Despite these falls, Shanghai is still up 8.4% year to date and 69% over the last 12 months. Shenzhen is still up 33% to date and 68% over the last 12 months.
- Trading in the shares of more than half of China’s listed companies has now been suspended. Other initiatives to halt the market slide include official encouragement of stockbrokers to invest their own money in Chinese equities, public funding for stockbrokers and a halt to a number of planned company flotations.