The Shanghai Composite moved off a fresh 2013 low on Thursday after HSBC's Chinese manufacturing survey revealed a drop in new export orders for the first time this year, adding to concerns about the global growth outlook.
The rest of Asia's stock markets fell across the board amid rising concerns about the global economy, bringing truth to the old saying "sell in May and go away."
Global Growth Woes
Soft data in the last few days have sparked concerns about the economic outlook for major economies. China's final HSBC Purchasing Managers' Index (PMI) dropped to 50.4 in April from March's 51.6 reading, indicating how serious sluggish demand from the U.S. and Europe is weighing on Chinese exports.
Meanwhile, data on Wednesday revealed that U.S. manufacturing activity fell to 50.7 in April, the lowest reading in six months. Experts say that these factors, combined with Europe's high unemployment and easing inflation, could trigger a shot of monetary stimulus from central banks.
"The world is falling apart. Well perhaps that's a bit of an overreaction, but it seems that data globally is dangerously close to contraction in many of the manufacturing surveys," said Chris Weston, chief market strategist at IG in a note.
After the Federal Reserve said on Wednesday that it was prepared to "increase or reduce" the monthly pace of its $85 billion in bond purchases, anticipation is building for the European Central Bank to cut rates by 25 basis points to a historic low of 0.5 percent at its meeting on Thursday.
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Mainland shares kicked off the month of May on a soft footing as markets resumed trade after the three-day Golden Week holidays.
"There are two big surprises in the PMI data. One is that new export orders are weaker - that really reflects global weakness. The other big surprise is weak import price pressures. We see price pressures coming down, which will allow the government to maintain stimulus measures as needed," said Frederic Neumann, co-head of Asian economics research at HSBC.
The benchmark Shanghai Composite hit 2,161 points earlier in the session, its lowest level since December 25.
Manufacturers suffered the brunt of the sell-off with pharmaceutical maker Shanghai Kaikai Industrial and JX Wind Energy the worst-performing stocks on the index, tumbling 10 percent each.
Australia Down 0.7%
The combination of overnight falls in commodity prices and the China PMI data sent Australian resource stocks tumbling. Gold miners Medusa Mining closed down 9 percent while St Barbara slumped 8 percent.
Shares of electricity and gas retailer AGL Energy fell 3.7 percent after it downgraded full-year profit guidance, citing increased competition.
The S&P ASX 200 has lost 1.4 percent since peaking at 5,195 on Tuesday, its highest levels since 2008.
Nikkei Extends Losses
Investors engaged in profit-taking ahead of a long weekend in Japan. Financial markets will be shut Friday and Monday for the Golden Week holidays.
Minutes released on Thursday from the recent Bank of Japan meeting further added to the negative sentiment after one member said large-scale monetary easing could hurt institutional investors.
"Despite the BOJ's commitment to buy JGBs (Japanese government bonds), we haven't seen Japanese investors being forced to go global. They are still selling foreign bonds so until we do [see a change], it's going to be very difficult for them to get the most bang out of their buck," said Kathy Lien, managing director of BK Asset Management.
Machinery stocks were among the worst performing sectors, with construction equipment maker Komatsu down 4 percent on concerns over weak U.S growth.
Kospi Below 1,960
South Korea's benchmark index was able to escape heavy losses thanks to a broad rally in telecom shares. LG Uplus surged 15 percent, KT Corp. added 6 percent and SK Telecom rose 5 percent on strong earnings expectations.
Also boosting sentiment was the government $10 billion aid package to support the country's exporters, which have been hurt by a weaker yen lifts the competitive advantage of their Japanese rivals.
The index closed 10 points shy from Tuesday's one-month high of 1,967.