Over the weekend, the Chinese government indicated that its economic slowdown may be bottoming out. Chinese news agency XinHua reported on 31 May that China President Xi Jinping said expansion is on a “more stable footing” and that the fundamentals of the Chinese economy are “sound”. The manufacturing PMI data released on Saturday appears to support his remarks as it showed a pick up in growth.

May Manufacturing PMI higher than expected
The PMI reading released over the weekend on 1 June by the Chinese National Bureau of Statistics was higher than all estimates in a Bloomberg News survey of 30 analysts, exceeding the median projection of 50, which marks the dividing line between expansion and contraction.

China’s May official manufacturing PMI showed a pick up in growth, rising to 50.8 from 50.6 in April, after a separate gauge last week signaled a contraction. The Shanghai Composite Index had fallen 0.7% last Friday ahead of the data on concern that the official PMI would decline.

The non-manufacturing PMI will be released later this morning, along with the HSBC Manufacutring PMI. While both gauges displayed slower expansion in April, the official survey has not dropped below 50 since March 2011.

“Sound” Chinese economy
The weekend data certainly lends support to China President Xi JinPing’s claim that China’s expansion is on a “more stable footing” and that the fundamentals of the Chinese economy are “sound” with domestic demand, especially consumption, playing a bigger role in driving growth, while employment is stable and incomes are rising. The comments were reported by Chinese news agency Xinhua ahead of the President’s visit to Latin America and the Caribbean.

China equity indices to recover losses along with data?
Six months ago, Chinese indices had traded to their 2009 lows as Chinese data signalled a slowdown in growth. The Shanghai Composite Index sank below the 2,000 level while the China A50 Index traded below 7,000. Both indices however, appear to have bottomed out as they picked up 24% and 36% respectively to recent highs in February, before losing more than 10% in the next four months to trade at 2,300 and 8,222 last Friday.

With further manufacturing and non-manufacturing data to be released this morning and key export figures to be released this Saturday, Chinese indices could see moves this week Singapore investors may wish to trade.

Source: Macquarie Research - 3 Jun 2013