Grim China factory data caps worst week of year for stocks

World stock markets tumbled towards their worst week of the year on Friday and commodities got another kicking, as more alarming data from China sent investors scurrying to the safety of bonds and gold.

The data from China showed its giant manufacturing sector slowing at the fastest pace since the depths of the financial crisis in 2009, confirming worries about its health that have been preying on economist’s minds for months.

Emerging market assets took another hammering and oil prices were on track for their longest losing streak since 1986, as fears of a China-led deceleration in entire global growth gripped sentiment.

The major developed economy markets were increasingly being dragged into the sell-off. Wall Street was expected to open firmly in red again later having already lost more than 2.5 per cent this week.

Europe’s bourses were also being beaten up. The pan-regional FTSEurofirst was down more than 1.5 per cent as traders shrugged off some reassuringly solid euro zone manufacturing and services data in a third straight day of selling.

Britain’s FTSE 100 was 1.2 per cent lower, Germany’s DAX, which is having its worst month since 2011, was down just under 1.4 per cent and France’s CAC 40 was off 1.1 per cent.

"Markets are going to continue to be somewhat disappointed by the implications for Chinese growth ... and I don't have a great deal of comfort to offer there," said Michael Kurtz, global head of equity strategy at Nomura.

In the FX markets, the euro regained some of its overnight momentum having been pushed to a two-month high by those looking to get out of battered Asian currencies and China proxies such as the Aussie and Hong Kong dollars.

The latest rout had been triggered as the Caixin/Markit manufacturing index showed activity in China’s factory sector shrinking at its fastest pace in almost 6 1/2 years in August as domestic and export demand dwindled.

That decline, coming on the heels of weaker-than-expected data in July, plus this month’s turbulent changes in the yuan , and a brutal stock market plunge, heightened fears.

Shanghai stocks dropped 4 per cent to below the 200-day moving average for the first time since July 2014. That brought losses for the week to 11 per cent.

The Hang Seng index in Hong Kong was down 2.4 per cent for a weekly loss of 7.4 per cent. Japan’s Nikkei declined 2.9 per cent, 5.2 per cent on the week.

It all left MSCI emerging markets index at its weakest in four years and the 45-country “All World” index down more than 3.2 per cent on the week and heading for its worst of 2015 so far.