Russia HSBC Composite PMI up again, though manufacturing was weak
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The HSBC Composite PMI is composed of the Manufacturing PMI and the Services PMI. Both are surveys similar to the ISM Index in the United States, which is a purchasing manager’s survey that aims to measure the growth sentiment across the manufacturing sector.
The surveys ask several questions with answers limited to three choices: better, neutral, worse (or faster, neutral, slower, depending on the type of question). Responses give scores of 100, 50 or 0, respectively and the answers for all questions are aggregated with specific weights to arrive at each PMI index. Both the Manufacturing and Services PMIs are then aggregated to create the Composite PMI.
The values are positive and imply a continuation of the modest growth previously measured. While the values are much lower than the pre-crisis long term average of almost 58, the data shows that the economy seems to be on the right path.
Disaggregating the Composite PMI into its two main components shows that the marginal increase was the result of a Manufacturing PMI deceleration being offest by a strong Services PMI. Further looking into the individual components shows that new orders slowed down while output inched slightly higher. Additionally inflation subsided despite the elevated recent Consumer Price Index reading above 7%.
The positive data, though, conflicts with the slew of negative macroeconomic data from lower industrial activity to slumping retail sales. PMI surveys are relative and they measure if relative to a previous period that perception has increased, remain unchanged or decreased; it does not take into account other previous periods. On the other hand, many macroeconomic indicators are based on year-over-year comparisons or cumulaitve twelve month growth rates and therefore will show lower lower values given the sharp drop last Fall.
Another reason, as pointed out by the HSBC, is that if growth rates among different sectors converge (e.g. faster sectors turn moderate and slower ones turn faster), then the PMI would be unchanged since it is an average, but the aggreagte macroeconomic data would point to a lower growth rate1. It points out that both the car and construction materials sector have slowed down from double digit to single digit growth.
So overall the takeaway for investors in Russian equities (e.g. RSX, RSXJ) is that in the short term, growth remains moderate and inflation pressures are decreasing.
- A percentage drop in a bigger quantity has a larger effect than the same percentage increase of a lower quantity, hence overall the growth rate would be lower. ↩