Investors are second-guessing the underlying strength of the world’s two biggest economies as each faces homegrown challenges.
China is still expected to maintain steady growth this year, albeit without the vim it once had. But its ever-expanding shadow banking sector gives reason to be anxious.
So-called wealth management products play a big role in this opaque area of finance. Touted as high-yielding savings tools, they channel money from individual investors and corporations into real estate and infrastructure. An interruption in these inflows could trigger an unpredictable credit crunch. In fact, one such product teetered on the edge of default last month.
Meanwhile, statistics point to weak demand for goods and services. China’s official purchasing managers index dropped to a six-month low in January. The PMI for nonmanufacturers fell to the lowest in five years.
Chinese factories typically stock up on parts and materials before the firecracker-lighting Lunar New Year holiday. For suppliers, this year was a dud. Japanese materials maker Teijin reports weak purchasing of polycarbonates, a widely used type of plastic. Prices are down around 10% from last spring’s peak.
When China hits the brakes on raw material consumption, Australia gets whiplash. Prices of coal, iron ore and other key exports have already fallen, and the jobs market has taken a hit that owes partly to a lull in big mining sector investments.
The U.S. is in a similar situation. Skittish investors can point to no great break in the economy’s stride. But they worry about the impact of a brutally cold winter in the Midwest and South, home to concentrations of American manufacturing. Bad weather has disrupted production and shipments in what is proving more than a mere blip. New-car sales missed the year-earlier level for the first time in four months in January.
In another troubling sign, the Institute for Supply Management’s gauge of new factory orders fell 13.2 points on the month in January in what J.P.Morgan called the biggest drop in 30 years.
The Dow Jones Industrial Average tumbled more than 300 points Monday as doubts emerged about the vigor of the U.S. recovery. The broad-based sell-off contrasted with the down days up to last week, when emerging-market turbulence and other overseas conditions weighed on investor sentiment.
