China, Japan Shares Sink On Weak Economic Data

Stocks in major Asian countries fell overnight on fears of a protracted economic slowdown in China spilling over to the global economy.

A weak retail sales report in Japan followed a terrible report from earlier in the weekend from China that indicated that economically-sensitive industrial profits dropped sharply in June.

China Weakness

Over the weekend, the National Bureau of Statistics reported that industrial profit growth dropped precipitously in June from May. Industrial profits rose 6.3 percent in June from a year ago, posting a sharp drop from May's growth rate of 15.5 percent. The sharp slowdown coincided with the massive liquidity crunch in the country which could have affected profits.

Profits from main business operations were even worse, declining 2.3 percent from a year ago in June. Main business operation profits had risen 8.8 percent in May in the world's second largest economy, raising fears that the global trade engine continues to slow.

The moderation in profit growth was due to a slowdown in sales gains, higher raw-material costs and a high comparative base in June last year, He Ping, a statistics bureau official, said in the release.

The Shanghai Composite Index dropped 1.17 percent overnight on the news while the CSI 300 Index fell 1.81 percent. Financial stocks led declines with real estate developers declining 3.64 percent as a group and investment banks falling 3.16 percent. Industrial stocks fell 2.78 percent while materials stocks dropped 2.07 percent.

Japan Retail Sales Drop

In Japan, a weak retail sales report followed by comments by Prime Minister Shinzo Abe that the sales tax hike may not be delayed sparked a sell-off of Japanese shares. The Japanese Nikkei 225 Index declined 3.32 percent overnight and turned negative for the month of July while the Topix Index fell 3.31 percent.

Weakness was seen in energy stocks, which fell 4.37 percent, and technology companies, which declined 4.13 percent. Basic materials stocks also fell 4.31 percent and utilities dropped 5.56 percent.

Overnight, Japan reported that retail sales fell 0.2 percent in June from May compared to a 0.8 percent gain that was expected. On an annualized basis, retail sales rose a mere 1.6 percent compared to the expected gain of 2.1 percent while large retailers posted sales growth of 3.5 percent from a year ago, a slight miss of the expected 3.6 percent gain.