China's PMI Declines As Investors See Value In China

Includes: CAF
by: CRG Research

China's Flash Manufacturing PMI fell to a 4-month low of 48.1 and the Flash Manufacturing Output Index declined to a 2-month low of 47.9. Readings below 50 signal contraction.

New Orders and New Business Exports remained below the 50 level. Output Charges and Input Prices also remained below the 50 level.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: "Weakening domestic demand continued to weigh on growth...External demand remained in contraction territory...employment recorded a new low since March 2009..."


The Chinese stocks present opportunities for patient investors according to experts. The MSCI China Index is down 2.7% in March. The Morgan Stanley China A Share Fund (NYSE:CAF) is trading at roughly 33 percent of its 2007 level of $65 or at roughly $21.

Policy makers are expecting slower growth in China as the nation reported its largest trade deficit since at least 2000. The reported trade deficit in February is $31.5 billion. The People's Bank of China is acknowledging slower growth by cutting the Reserve Ratio and will probably cut the benchmark interest rate.

China is transitioning from an export-led economy to growth led by domestic consumption. The result has historically been smaller deviations in the growth rate, which could mean less dislocation investing opportunities for investors.

The P/E ratio of the FactSet Aggregate China Index, a gauge of Chinese stocks, is about 9.9, below its 15-year average of 12, according to FactSet Research Systems data. The current P/E ratio is roughly 23 percent below the 15-year average.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.