China Flash PMI shows recovery acceleration

China Flash PMI shows recovery acceleration

The March HSBC Flash PMI for March increased to 51.7 from a 50.4 in February, showing that China is starting to accelerate more than expected.

The Purchasing Managers Index (PMI) gauges the health of the manufacturing sector of a country by polling several managers within the industry. The questions asked aim to measure the growth perception of several components along the production logistics chain.

HSBC and Markit gather and publish PMI surveys for several emerging markets, among them China. In China, the HSBC PMI serves as a double check to the government’s offcial PMI, given China’s reputation of fidgeting with published statistics.

The Flash PMI is a preview of the full month PMI based on 85% of the data that encompasses the full PMI, with the advantage of being released before the month ends when several other government macroeconomic statistics are published. Flash PMIs are very good leading indicators and are therefore very important for the market.

The Chinese market gapped over 2% on the announcement as investors regained confidence. Nonetheless, the market is below the level it was a week ago before the Cyprus situation turned investors pessimistic around the world.

The data is very positive in the short and medium term for investors in China (e.g. FXI, MCHI) as well as emerging markets in general (e.g. EEM, VWO) given China’s share of emerging markets index plus its strong influence on other small (e.g. South east Asia) and large emerging markets (e.g. Brazil – EWZ, whose market is 96% correlated with the Chinese market).

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