China today released its official PMI (purchasing managers index) data which was better than expected. However, Chinese stock markets closed in the red amid the sell-off in Asian markets today.
China’s official manufacturing PMI was 51.9 in March, which was ahead of the 50 that analysts were expecting. The PMI stood at 50.6 in February. The country’s manufacturing PMI has now been above 50 for 13 consecutive months.
PMI readings above 50 show an expansion in economic activity while readings below 50 are associated with contraction. We get two versions of China’s PMI data. The data point that we’re referring to is the official reading that at times tends to diverge from private PMI data released by Caixin. The Caixin data is expected to be released tomorrow.
While the official PMI survey focuses mainly on large SOEs or state-owned enterprises, the Caixin survey focuses on private enterprises.
Coming back to China’s official PMI data, it was the highest this year. Here it is worth noting that China’s economic indicators can at times display a misleading picture in the first quarter due to the Lunar New Year Holidays that tend to depress the economic activity.
“After the Lunar New Year, the recovery of production accelerated, and the manufacturing industry rebounded significantly in March,” said Zhao Qinghe, a senior statistician at China’s National Bureau of Statistics.
However, he also pointed to supply-side bottlenecks. “Some surveyed companies reported that due to repeated overseas outbreaks and clogged international economy and trade, the recent supply of some imported raw materials has been insufficient, prices have risen significantly, and delivery cycles have been extended,” said Zhao Qinghe in the release.
Chinese electric vehicle makers
Chinese electric vehicle producers including NIO, Li Auto, and XPeng Motors reported tepid delivery numbers in February due to the Lunar New Year Holidays. Meanwhile, their deliveries are expected to bounce back in March. However, NIO had to temporarily halt production in the month due to chip shortage that hurting industries ranging from automotive to white goods. However, chip equipment suppliers like Lam Research are benefiting as chipmakers scale up their facilities.
China PMI data analysis
Generally, it takes time for normal business activity to resume in China after the Lunar New Year Holidays. However, this year, the worker mobility was much lower than in previous years due to COVID-19 related restrictions. Analysts see the strong data as a sign that growth is rebounding in the world’s second-largest economy.
“The latest official PMI surveys suggest that after being hit by virus disruptions earlier in the year, growth bounced back strongly this month,” said Julian Evans-Pritchard, senior China economist at Capital Economics. However, he warned of a slowdown in exports and added “The current strength of exports is likely to unwind over the coming quarters as vaccinations allow a return to more normal global consumption patterns.”
Global chip shortage
The global chip shortage is another challenge for Chinese manufacturers. Whirlpool’s China chief Jason Ai has already warned that the chip shortage is taking a toll on its operations as he termed it a “perfect storm.” According to him, “On the one hand we have to satisfy domestic demand for appliances, on the other hand we’re facing an explosion of export orders. As far as chips go, for those of us in China, it was inevitable.”
Services PMI also rebounds
China’s non-manufacturing PMI also rebounded to 56.3 in March from 51.4 in February. However, the employment subindex was still in the contraction zone in the month at 49.7 even as it improved from 48.4 in February.
Meanwhile, China was the only major economy to grow in 2020 as it controlled the pandemic much better than other countries. The Chinese economy grew 2.3% last year even as all other major economies entered a recession. For 2021, the country has set a growth target of 6% which is the lowest target set in decades. Also, the growth outlook was much lower than what analysts were expecting.
Chinese markets fall despite better-than-expected PMI
Meanwhile, despite better-than-expected PMI data, Chinese stock markets were weak today and the Shanghai Composite Index closed down 0.43%. While Chinese stock markets bounced back last year, it is the major stock market that is trading below its 2007 highs.
The Chinese economy would face headwinds amid souring relations with the US, its biggest trading partner. Joe Biden is looking equally tough on China ending hopes of any quick resolution of the impending issues between the world’s two largest economies.
Should you invest in Chinese markets?
That said Chinese stocks look like a good asset class that can help you diversify your portfolio. There are several ways to trade and invest in Chinese markets. Some of the brokers let you trade in Chinese market stocks. You can also invest in stocks of Chinese companies that are listed on the US stock markets. You can select from any of the best online stock brokers. You can also invest in the Chinese market indices through binary options. There is a list of some of the best binary options brokers.
If you are not well versed in investing in stocks and still want to have exposure to China’s stock markets, you can consider ETFs. There are ETFs that give you exposure to a basket of emerging market stocks as well as those focused on China. There is also a guide on how to trade in ETFs.