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China’s Macroeconomic Indicators and China-Focused Mutual Funds

PART:
1 2 3 4 5
Part 5
China’s Macroeconomic Indicators and China-Focused Mutual Funds PART 5 OF 5

China’s PPI Data Indicate Continued Deflationary Pressure

China’s CPI data

In October, China’s CPI (Consumer Price Index) rose 1.3% year-over-year (or YoY). This was mainly due to higher food prices, especially pork, and not due to an improvement in economic activity. In October, food prices rose by 1.9%, and non-food prices increased 0.9%.

On average, from January to October, overall consumer prices rose by 1.4% over the same period of the previous year.

China’s PPI Data Indicate Continued Deflationary Pressure

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China’s PPI data

The Producer Price Index (or PPI) for manufactured goods consists of the Producer Price Index and the Purchaser Price Index. In October, China’s PPI for manufactured goods fell 5.9% YoY as manufacturers resorted to price-cutting due to weak demand.

Similarly, the Purchasing Price Index for manufactured goods fell 6.9% YoY. On average, from January to October, the PPI fell 5.1% YoY, while the Purchasing Price Index for manufactured goods fell 6.0% YoY.

The deflationary trend is rising in the manufacturing sector, which is disturbing. Lower prices mean lower profits for factories, and shrinking margins make it difficult for manufacturers to run their businesses for a longer time.

Impact on mutual funds

PPI data point out sluggish local demand, and as a result, raw material cost is continuously going down, which adversely affects all the companies operating in China. Performances of mutual funds such as the Clough China Class A Fund (CHNAX), the Guinness Atkinson China & Hong Kong Fund (ICHKX), the Eaton Vance Greater China Growth Class A Fund (EVCGX), and the John Hancock Greater China Opportunities Class A Fund (JCOAX) are also impacted.

Demand for consumer discretionary goods, in particular, has fallen. This has adversely impacted consumer discretionary companies Jumei International Holding (JMEI), Qunar Cayman Islands (QUNR), Ctrip.com International (CTRP), and JD.com (JD).

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