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April China Manufacturing PMI

05/01/2013

Throughout 2013, the investment community has looked upon the world’s second largest economy, China, to present evidence of a sharp rebound in growth.  The absence of any evident growth recovery has placed the materials sector (XLB) in a position of significant underperformance relative to the S&P 500® Index. 

 

Last evening, the China PMI for the month of April was released.  Investors should interpret the weak composition of this report as confirmation to maintain materials and commodities at underweight allocations.

  • April PMI fell to 50.6 from 50.9 in March
  • Consensus estimate for the April PMI was 50.7
  • April new export orders fell to 48.6 from 50.9 in March
  • April input prices fell to 40.1 from 50.6 in March
  • April backlogs of work fell to 43.6 from 47.1 in March

 

China PMI June 2009 – May 2013

 

Source: Bloomberg

 

2013 China Manufacturing PMI

April

March

February

January

Manufacturing PMI

50.6

50.9

50.1

50.4

Output

52.6

52.7

51.2

51.3

New Orders

51.7

52.3

50.1

51.6

New Export Orders

48.6

50.9

47.3

48.5

Backlogs of Work

43.6

47.1

44.4

44.4

Input Prices

40.1

50.6

55.5

57.2

Inventories of Raw Materials

47.5

47.5

49.5

50.1

 

Introducing a New Indicator – the Australian Dollar

As frustration begins to mount on the part of investors who expected a much earlier reacceleration in Chinese growth than is actually evident, I would like to introduce the following indicator to suggest confirmation of the much anticipated resurrecting Chinese growth. 

 

The value of the Australian dollar, currently trading at 1.0285, reached its high price for 2013 on January 10, trading at 1.0599. Its performance since then appears to be highly correlated to the economic data from China. Please view a sustained rally back above the January 10 high as confirmation of accelerating growth in China.

 

Australian Dollar Year to Date

 

Source: Bloomberg

 

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.