Stocks of Chinese companies broadly climbed early in the week driven by positive news flows. On Monday, the central bank of China cut the rate on reverse repo agreements by 20 bps to 2.20 percent. It was the steepest reduction in five years, surpassing economists' expectations. The lowering of the rate at which the central bank charges the Chinese banks on week-long loans would bring down their costs and hopefully spur them to increase lending to the domestic businesses and consumers.
To add icing to the cake, the People's Bank of China also injected 50 billion yuan ($7.1 billion) into the banking system. On Tuesday, the release of China's official manufacturing Purchasing Manager's Index ('PMI') showing a huge rebound to 52.0 in March, up from a record-low 35.7 in February, reminded investors that China is back in business, even as much of the rest of the world is facing restricted or curtailed activities.
Savvy readers would point out that the official survey is skewed towards the larger state-owned companies and might not be reflective of the country's overall status. That's a great point. Fortunately, the privately compiled Caixin/Markit (INFO) manufacturing PMI with a larger concentration of SMEs concurred with the trend, rebounding to 50.1 in March from 40.3 the previous month.
The Chinese service sector was less impressive. While the latest official non-manufacturing PMI jumped to 52.3 in March 2020 from a record low of 29.6 in February, the Caixin/Markit version was at 43.0, below the neutral 50.0 level, signaling a continued decline in service sector output. Dr. Zhengsheng Zhong, Chairman and Chief Economist at CEBM Group explained the phenomenon:
"The epidemic will have a longer-term impact on service companies than on manufacturing enterprises, as some of the missed consumption during the outbreak - such as spending on household services
