Markets in Asia had their bull run clipped yesterday after the interim report on the health of the Chinese manufacturing sector showed a surprisingly sharp fall to the lowest level in almost a year.
Our market ended higher, but Hong Kong and Chinese markets fell, especially after the news about China. The Chinese market fell, then rose to close slightly higher.
The so-called ‘flash’ report from HSBC/Markit was worse than expected by markets at a preliminary 49.2 for March, down from the 50.7 in February and market forecasts for 50.5.
The HSBC survey looks at the small and medium companies in the Chinese economy, while the official survey of manufacturing looks at larger companies. Both that survey for March and the final for hSBC/Markit will be out on April 1.
The last reading for the official survey showed a reading of 49.9 – which is a small level of contraction.
The HSBC was last in negative territory in January when the final read out produced a figure of 49.7.
The reading is the first after China’s Lunar New Year holiday, which tends to distort economic data for January and February.
Subindexes for new orders, new export orders as well as employment all fell from the previous month, HSBC said.
"A renewed fall in total new business contributed to a weaker expansion of output, while companies continued to trim their workforce numbers," HSBC economist Qu Hongbin said in a statement.
Falling input costs in the shape of lower commodity prices (oil, copper, other metals, iron ore, coal etc) are not really helping manufacturing. In fact they are adding to the deflationary price pressures that have gripped the world’s biggest manufacturing sector now for three years.
Adding to investors concerns was a ‘flash’ report for Japanese manufacturing which revealed a 10 month low of 50.4, down from 51.6 in February.
The latest reading is indicating expansion, but the reading shows the country’s economy continues to struggle with weak demand and price disinflation pressures.
Domestic orders were especially weak.
Co-incidentally, the Asian Development Bank yesterday released its updated forecasts for Chinese economic growth in 2015 and 2016 – and it’s a bit more upbeat than even the Chinese government’s outlook.
In its annual outlook for the region, the ADB predicted that economic growth in China would moderate only slightly to 7.2% this year and 7% in 2016, compared to 7.4% growth last year.
The 2015 is above the government’s new, lowered estimate for growth of “about 7%”.
"Partly because of lower oil prices, there is more purchasing power in China," said Takehiko Nakao, ADB president. "It is really remarkable growth for a country with per capita GDP of $7,000."
The ADB believes that the Chinese government’s reform agenda will also bolster the economy.
There is probably more support for the ADB’s upbeat forecast for Indian economic growth. The bank sees growth the year to March, 2016 (India’s financial year) at 7.8% and 8.2% in the 2016 year.
