European stocks fall as markets lose confidence in China recovery

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European markets have ended their worst month in years thanks to the China fallout, as markets continue to lose confidence that the country can bounce back.

August saw the worst data for the European market since August 2011.

The FTSEurofirst 300 ended the month down 9.1 per cent, while the German Dax was down slightly more at 9.4 per cent for the month. The CAC 40 index fell 8.7 per cent in August.

The drops in European markets came as key manufacturing data from China confirmed the country’s slowdown.

Manufacturing activity in China contracted at its fastest pace in three years in August, with the official manufacturing purchasing managers’ index dropping to 49.7 in August from 50 in July, with a rate below 50 showing contraction.

In reaction the Shanghai Composite share index fell by 2 per cent to 3,142.14, while the Hong Kong Hang Seng index dropped 0.8 per cent.

Experts are growing increasingly concerned about the Chinese government’s reaction to the stock market falls, as the government arrested more than 200 people for “illegal rumour-mongering”. It has targeted traders, social media users and journalists for making the volatility last week worse.

“It’s a joke. They don’t know what they’re doing,” Alastair Winter, chief economist at City broker Daniel Stewart & Co told City AM. “I certainly wouldn’t advocate anybody putting money into China at the moment. They’ve just lost it. I think they’re going from disaster to disaster.”

“The conduct and belief system which underlies their behaviour is not what cuts the mustard when it comes to investor confidence,” added George Magnus, an associate at Oxford University’s China Centre and a senior adviser to UBS.