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China Stocks Look To Chinese Economy Rise Is A Good Opportunity

About: China's Lunar New Year, China's Spring Festival, Xinhua news agency, Lunar New Year, Shanghai Stock Exchange, Shanghai Composite Index, China's economy, China investing, China economy, China Stock Digest, Chinese economy, China stock market Bookmark and Share
Stocks Say the New China Trend is Your Friend
Stocks Say the New China Trend is Your Friend

The most important yardstick for measuring economic growth in China has economic pundits running in opposite directions. What should we make of the latest PMI Index? The PMI is the purchasing manager's index, a survey of economic activity directly from the executives in the know at China's key companies.

There's no arguing the fact that the PMI is down for February. There are two versions of the index, one by China's National Bureau of Statistics (NBS) and one by the global financial giant HSBC. Both show a decline.

The official NBS Purchasing Managers Index fell to 52 percent in February. That's down 3.8 percentage points from a month earlier.

The HSBC China Manufacturing PMI also slipped to a three-month low of 55.8 in February, from 57.4 in the previous month.

It sounds like bad news. But is it?

Many pundits are giving quotes to the media saying the drop is good news because it shows a cooling of the economy and a reduction of the risk of inflation. Others have gone on record in the media, calling the PMI numbers "really ugly." Another group of analysts is dismissing the PMI reading for February because it was distorted by the week long Spring Break holiday.

How do we read the numbers?

The clearest and most reliable measure is the stock market. Investors are cheering. The Shanghai Composite Index was up one percent on the news. In New York trading the China ADR Index is up more than one percent as well. Why the optimism?

Clearly, many investors agree that keeping a lid on inflation is important. High inflation would mean action from Beijing to raise interest rates – a measure that would put the brakes on economic expansion.

It's also important to note that the downside of this decline is very small and still above a key threshold. The official PMI index has stayed above 50 - indicating expansion - for 12 straight months. The HSBC version of the index has risen for 11 straight months, also pointing unequivocally to an expansion. The PMI hit its low of 38.8 back in November of 2008 and has hardly looked back since.

There's one other important detail to note. The government version of the PMI is weighted heavily toward big domestic companies while the HSBC survey is slanted toward privately owned and export-oriented firms. Once again, the HSBC survey showed an important difference from the government's big cap outlook.

HSBC says businesses that took part in its survey detected improved economic conditions among a number of China's key trading partners. Qu Hongbin, chief economist for China at HSBC, was not worried by the dip, saying in a statement, "Growth momentum for China's manufacturing sector remains strong, pointing to a further acceleration in industrial activities in the coming quarters."

Investors voted with their dollars and agree with HSBC.

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Comitted To Your Profits In China,

Jim Trippon
Editor
China Stock Digest

www.chinastockdigest.com
 



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