Toys factory, Lianyungang
Chinese factory activity contracted at a faster pace in September Reuters

Asian stocks fell sharply on 23 September after a private gauge of China's manufacturing sector showed factory activity in the world's second largest economy dived to a six-and-a-half-year low. The flash Caixin/Markit manufacturing purchasing managers' index (PMI) eased to 47 in September from 47.3 in the previous month, missing analyst expectations for a reading of 47.5. A reading below 50 signals contraction.

The mainland's benchmark Shanghai Composite index retreated 2.2% to 3,116.90 points on the back of the news. "The decline (in PMI) indicates the nation's manufacturing industry has reached a crucial stage in the structural transformation process," said He Fan, chief economist at Caixin. "Patience may be needed for [government] policies designed to promote stabilisation to demonstrate their effectiveness."

Elias Haddad, senior currency strategist at Commonwealth Bank of Australia, told US cable channel CNBC: "The flash China PMI fell more than market participants expected and the PMI is also well below the 50-point threshold, which reaffirms that Chinese economic activity continues to slow and this adding to global economic and financial concerns." Shares in Hong Kong followed the mainland lower, with the Hang Seng falling 3% to 21,146.31.

China woes

Investors also took cues from a widespread sell-off on Wall Street overnight, where the Dow Jones and S&P 500 indices closed down 1.1% and 1.2%, respectively, on lingering concerns over China. "The problems China faces in reaching its 7% GDP growth target as we approach the final stretch of the year are becoming increasingly stark," noted Angus Nicholson, market analyst at trading firm IG in Melbourne. "Consumption and the services sector have been performing well in China, but to hit the growth target output they will really have to start turning it around in the next few months."

Iron ore train car, Port Hedland
BHP Billiton shares fell more than 4% on worries over China Reuters

Australian shares also fell, with the S&P/ASX 200 index shedding 2% to 5,000.50 points. Market bellwether BHP Billiton's shares dipped 4.4% on worries over China. Elsewhere, South Korea's Kospi index was down by 1.5% at 1,952.35. Markets in Japan remain closed for public holidays and will reopen on 24 September.