Australia is the clear loser from China's economic woes, warns S&P

Australia is the “clear loser” from China’s economic slowdown, according to a leading credit rating agency.

Despite a strong recovery by the Australian stock market after Tuesday’s heavy losses, Standard & Poor’s says China’s trading partners must adjust to the Asian giant’s slowing economy with commodity suppliers such as Australia hardest hit.

“With China’s slowing growth, Australia is a clear ‘loser’, reflecting its commodity-intensive export basket and strong trade links with the country,” S&P’s Asia-Pacific chief economist, Paul Gruenwald, says in a report released on Wednesday. “What was a blessing before is now a curse.”

Australian shares recouped some of Tuesday’s near 4% loss – or around $60bn in market value – after the UK-listed mining-cum-trading company Glencore reassured investors that it would be able to withstand falling commodity prices.

At the close on Wednesday, the benchmark S&P/ASX 200 index was up 103.2 points, or 2.1%, at 5,021.6 points. The Australian dollar followed shares upwards and was buying US70.05 cents at 5.30pm on Wednesday.

Other markets across Asia Pacific also fared better but concerns lingered over slumping commodities prices and China’s cooling economy.

European markets were set to follow Asia higher, with financial spreadbetters expecting Britain’s FTSE 100, Germany’s DAX and France’s CAC 40 to open as much as 1.2% higher. US stock futures rose 0.8%, suggesting a stronger opening on Wall Street later in the session.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.6% after plumbing its lowest since June 2012 on Tuesday on fears that China’s slowdown would curb its huge appetite for commodities and resources.

The index was on track for a 2.9% decline in September, extending losses for the quarter to 17.7%, its worst quarterly performance in four years.

Japan’s Nikkei brushed aside an unexpected drop in the country’s industrial output to close up 2.7%, paring losses for the quarter to 14.1%, its deepest since 2010.

“The current environment represents a winding back of the overly bullish expectations of both commodity demand and Chinese growth – to a more balanced expectation of progressive, not exponential, growth,” said Angus Gluskie, managing director of White Funds Management in Sydney.

He said the impact from China was not just limited to Asia-Pacific but also Latin America and in particular Chile.

Earlier this week, the International Monetary Fund said the weak commodity price outlook could subtract one percentage point annually from economic growth in commodity exporting countries like Australia over the next two years.

Growth in Australia slowed to just 2% at the end of the June quarter, well below its long-term average of 3.25%.

Other commodity-based countries such as Canada and Brazil are already in recession.