Caixin China Services PMI
China’s service sector companies saw stronger expansion in business activity. Consequently, the Caixin China General Services Business Activity Index rose at a quicker rate and was above the neutral 50.0 value at 52.0 in October, up from 50.5 in September. A reading below 50 indicates that activity is shrinking, whereas a reading above indicates expansion.
The service sector saw a further rise in new orders in October. The rise in new orders was mainly due to improved client demand. As a result, employment was up in the service sector, and softer growth in new work orders enabled service sector firms to complete their unfinished business in October, leading to a reduction in backlogs. Average input costs rose as service providers cut their selling prices, however marginally.
Caixin China Composite PMI
Caixin China Composite PMI data, which covers both manufacturing and services, pointed to a broad stabilization of Chinese business activity in October. The Caixin Composite Output Index stood at 49.9 in October—slightly below the neutral 50.0 value—up from 48.0 in September.
Total business activity rose for the first time in three months mainly due to rise in new orders in the service sector. However, employment at the composite level continued to decline, although at a slower rate on account of job shedding in the manufacturing firms. Input prices at the composite level continued to decline due to the sharp fall in input costs in production houses.
As of November 3, 2015, the overall outlook for Chinese business activity in 2016 has been dampened by weak market conditions and the uncertain economic outlook.
Impact on mutual funds
The financials, IT (information technology), telecommunication services, and healthcare sectors are the four major service areas of focus in the AllianzGI China Equity Fund Class A (ALQAX), which has an exposure of ~70% to the sectors combined. Three other funds—the US Global Investors China Region Fund Investor Class (USCOX), the RS China Fund Class A (RSCHX), and the AC One China Fund Investor Class (ACOCX)—have combined exposures of 53.3%, 6.5%, and 60.1%, respectively, to these sectors. A rise in new orders in the service sector is a positive sign and tends to favorably impact mutual funds’ performance.
The aforementioned mutual funds invest in ADRs (American depository receipts) of Chinese technology companies such as China Biologic Products (CBPO), Baozun (BZUN), 58.com (WUBA), and Baidu (BIDU), which could witness some improvements in their revenues in the months to come due to an uptick in new orders in the service sector.
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