The HSI lost approximately 1.5% last week on the back of escalating violence in Ukraine, which led to a minor sell-off across Asian equity markets.
 
HSI traders often refer to economic data from China for clues on where the index may be heading in the coming weeks. The manufacturing PMI, a measure of the robustness of a country’s manufacturing activity is often used as a guide to HSI traders. Today the HSBC manufacturing PMI data will be released at 9.45am.
 
Macquarie Equities Research (MER) issued a report on 25 August, following the announcement of the manufacturing PMI which missed Bloomberg’s estimate of 51.5. Here are some excerpts from the report.
 
Focus article of the week:
Li Keqiang index is no longer an accurate tracker of China’s economy.
The past week was light in macro data and news. MER took this time to revisit the Li Keqiang (LKQ) index, a popular indicator among media and investors in tracking China’s economy. MER’s conclusion is that the LKQ index has become less relevant these days because all three sub-components (power consumption, rail freight and bank loans) are losing their significance.
 
Major macro themes of the past week
Moderation of HSBC Flash PMI in five months: Last week China’s market was broadly flattish, dominated by interim results instead of macro drivers. The most notable development on the macro front was the release of the Aug HSBC Flash PMI on Thursday, which fell for the first time since this April. Since April, there has been a divergence between real economic activities and PMI. The economy has remained weak, but the PMI rose to a new high in two years due to expectations on policy easing and improved export outlook. Equity market has decisively followed PMI instead of the real economy most of the time this year. MER is turning more cautious as PMI seems to have already peaked.
 
Property: Dark hour before dawn: Back in Feb, MER published a note which was among the first in calling for a coming property down-cycle. In that note, MER also pointed out that the slowdown in 2014 is just another short property cycle and sentiment would gradually improve in 2H14. Six months later, MER remains comfortable with the call. To be sure, property price, sales and investment data all continued to trend down in July. However, with eased home purchase restrictions and mortgage policies, sales outlook will likely improve in 4Q and home prices could bottom in 1H15.
 
Economic Data:
Mon 1 Sept: China HSBC PMI
Tue 2 Sept: Euro PPI; US manufacturing PMI, construction spending, ISM manufacturing
Wed 3 Sept: US factory orders; Euro retail sales; China non-manufacturing PMI; HK HSBC PMI
Thu 4 Sept: US releases beige Book, employment change, US PMI
Fri 5 Sept: US nonfarm payrolls, unemployment rate; Euro GDP

Source: Macquarie Research - 1 Sep 2014