Asia report: Stocks fall as China's service sector shrinks sharply

Most markets were weaker in Asia on Wednesday, with technology shares once again in the red, as fresh data out of China showed a serious shrinking of the country’s services sector in March.

In Japan, the Nikkei 225 was down 1.58% at 27,350.30, as the yen weakened 0.19% against the dollar to last trade at JPY 123.84.

It was a negative day across the benchmark’s major components, with automation specialist Fanuc down 1.53%, fashion firm Fast Retailing slipping 0.38%, and technology conglomerate SoftBank Group sliding 2.81%.

The broader Topix index was off 1.34% by the end of trading in Tokyo, closing at 1,922.91.

On the mainland, the Shanghai Composite eked out gains of 0.02% to 3,282.43, and the smaller, technology-heavy Shenzhen Composite was 0.01% firmer at 2,127.96.

The Caixin/Markit services purchasing managers’ index showed a serious contraction for the sector in March, tumbling to 42.0 for the month, from 50.2 in February.

It was well below the 50-point level that separates expansion from contraction in PMI readings, and was also the lowest reading since the earliest stages of the Covid-19 pandemic in February 2020.

The drop in activity came as China battled its worst outbreak of the coronavirus since then, with much of its largest conurbation Shanghai again under strict lockdown.

Craig Botham, chief China economist at Pantheon Macroeconomics, said the Caixin index gives greater weight to coastal regions, the private sector, and smaller firms.

“The latest Omicron wave has hit all three hard, given the locus first in Shenzhen and now Shanghai.

“This was a big miss versus consensus, but we suspect consensus simply had not updated following the official survey, which made it clear a big drop was on the way.”

Botham noted that there was a silver lining of sorts, in that employment marginally improved.

“This might suggest some success for government efforts to keep the sector afloat.

“But in February 2020 the services PMI dropped to 26.5, and employment actually rose sharply, only to fall back substantially in the months that followed.

“It is likely too soon to assess the impact on the labour market.”

South Korea’s Kospi lost 0.88% to 2,735.03, while the Hang Seng Index in Hong Kong was off 1.87% to 22,080.52.

The Hang Seng Tech Index was down 3.82% by the end of the session in the special administrative region, as Chinese technology plays slid further.

Alibaba Group lost 5.36%, Meituan was down 3.65%, and Tencent Holdings closed 2.31% weaker.

On the political front in Hong Kong, the city’s chief secretary John Lee handed in his resignation on Wednesday, amid press speculation he was vying to be the next chief executive - the top political post in the region.

Incumbent chief executive Carrie Lam, who has attracted criticism in her time in office for nurturing closer ties with Beijing and cracking down violently on pro-democracy protests - announced on Monday she would not seek another term.

The chief executive of Hong Kong is not directly elected, but is chosen by the 1,500-member Election Committee, despite the Basic Law of Hong Kong guaranteeing ‘universal suffrage’.

Seoul’s blue-chip technology stocks were on the back foot as well, with Samsung Electronics down 1.01% and SK Hynix losing 3%.

Oil prices were higher at the end of the Asian day, with Brent crude futures last up 1.68% on ICE at $108.43 per barrel, and West Texas Intermediate rising 1.82% on NYMEX to $103.82.

In Australia, the S&P/ASX 200 slipped 0.5% to 7,490.10, while across the Tasman Sea, New Zealand’s S&P/NZX 50 was 0.35% weaker at 12,079.30.

The down under dollars were both stronger on the greenback, with the Aussie last ahead 0.01% at AUD 1.3196, and the Kiwi advancing 0.23% to NZD 1.4366.