Every day new figuresshow how China is slowing. Manufacturing, imports, exports, inflation, bad debt: all the numbers are pointing in the wrong direction. Investors who seek solace in the fact that this may trigger another Chinese stimulus blitz should remember that easy money hasless and less traction. China is hurting, and the FTSE 100 is feeling its pain.
Time and again when I review stocks for The Motley Fool, Isee the impact China is having at an individual company level. Fashion retailer Burberry is the latest to feel the squeeze. Its shares fell 13% on Thursday morning as its poor Chinese performance rattled investors. It didnt help that Burberry posted strong sales growth in North America, Europe and Japan, China blighted all. The mainlandgovernmentscrackdown on excess has hit sales of luxury goods and even a 2% rise in underlying Q2 sales to 774m didnt avert the rout.
China has claimed far larger victims. LikeUK-listed banks HSBC Holdings and Standard Chartered, which do around 75% and 90% of their business in emerging markets respectively, primarily China and Asia. At 519p, HSBC is 21% down on its 52-week high. Given that it single-handedly makes up more than 6% of the FTSE 100, this has quite an impact on overall index performance.The fall is even more dramatic at Standard Chartered: at745p its share price is 36% off its year high.
HSBCs strategy of pivoting to Asia could hardly come at a worse time. The slowdown in China will affect the rest of the region. At least HSBC still yields 6.12%. Standard Chartered has scrapped its dividend.
The damage inflicted by slowing China can be felt across the oil and commodity sectors, which make up 11% and 5% of the FTSE 100 respectively. In the last six months BP and Royal Dutch Shell are down 20% and 16% respectively.Falling Chinese demandisnt entirely to blame, oversupply is alsoa factor, but it certainly doesnt help.
Slowing Chinese demand for metals and minerals has savaged FTSE 100 mining giants BHP Billiton and Rio Tinto, as well as Antofagasta,Anglo American, and of course Glencore. Since 2012it has driven 14 commodity stocks out of the FTSE 100 altogether, includingAmec,Cairn Energy,Evraz,Kazakhmys,Lonmin,Petrofac,Tullow OilandWeir.
Household goods giantsReckitt Benckiser and Unilever are rare exceptions: Chinese consumers are still buying cleaning and beauty products.
We cant blame China for everything, but when the worlds second biggest economy catches a cold, UKPLC cant help but sneeze. Pretty much all the affectedcompanies are responding in the same way, scaling back capital expenditure, slashinghundreds of millions offcosts, shelving developments, and in some cases dropping their dividends. This has a negative impacton UK business confidence and growth.
FTSE 100 companies generate 77% of their earnings overseas, an increasingly large part of that from emerging markets, which makes the index vulnerableto events elsewhere. No wonder it is trading at roughly the same level it was 12 months ago. More bad news fromChina will spellbad news for the FTSE 100 as well.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended shares in HSBC, Burberry and Tullow Oil. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.