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China PMI

03/01/2013

The China Purchasing Managers’ Index (Figure 1.1) for February recorded a 50.1, below last month’s 50.4 and consensus estimates for 50.5.  The weakest reading since September 2012’s 49.8 will be viewed as a disappointment by global markets. Most impacted will be the natural resources, materials, and raw commodity sectors, which I expect will continue to underperform.

China’s Q4 2012 GDP (Figure 1.2) reaccelerated to 7.9%; expectations for Q1 2013 rest at 8.2%. As the government transitions power this month to Li Keqiang from Premier Wen Jiabao, investors should pay close attention over the coming months to economic activity in China. Before Premier Wen Jiabao leaves office this month, he will announce his growth targets to the National People’s Congress. Growth is accelerating from its 2012 trough, however, at a below forecast, tepid pace.

Additionally, the People’s Bank of China has expressed concern that easy global monetary conditions could initiate a 2011 style inflationary environment for China. The government last month announced its intention to cool rapidly rising property prices.  Overall, this does not allow for investors to incorporate a significant contribution from China, similar to 2009-2010, into their investment strategies. Further monitoring is warranted at this time. 

February China PMI internals… 

  • Output 51.2, lowest level since August 2012’s 50.9
  • New orders 50.1, lowest level since September 2012’s 49.8
  • New export orders 47.3, lowest level since August 2012’s 46.6   
  • Input prices 55.5, down from last month’s 57.2, which was the highest level since May 2011’s 60.3 and consistent with PBOC inflation concern
  • Employment 47.6, weakest reading since January 2012’s 47.1
  • Imports 48.1, lowest level since September 2012’s 47.7  

Figure 1.1 China PMI Prior 36 Months

Source: Bloomberg
 
Figure 1.2 China GDP 1998-2013

Source: Bloomberg

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