China’s business sentiment fell
The MNI China Business Sentiment Indicator is a leading indicator. It measures China’s current business sentiment and future expectations for the economy. A reading above 50 indicates that the business sentiment is growing. A reading under 50 suggests that the business confidence is falling.
In November, China’s MNI Business Sentiment Indicator fell 10.3% to 49.9—below the neutral level of 50. It was also lower than the October reading of 55.6. A reading of 50 is considered “neutral.” New orders fell by 6.6% and production fell by 4.2% in November. The main reason for the contraction in the business sentiment was the fall in demand. It wiped out the benefits of the availability of cheaper credit and improvement in companies’ financial position.
The deflationary trend is rising. In November, input prices fell 17.8% month-over-month. As a result, market participants are expecting more monetary and fiscal stimulus. Philip Uglow, MNI Indicators’ CEO, said that “Currently, increased volatility in business sentiment brought on by a range of factors, not least the uncertain economic outlook. The latest result confirms that the business backdrop is fragile, and further stimulus is warranted, particularly given the renewed disinflationary tone struck in November’s survey.”
Impact on mutual funds
A fall in the demand could lead to a fall in companies’ revenue like Tencent Holdings (TCEHY), China Mobile (CHL), and Taiwan Semiconductor Manufacturing Company (TSM). China-focused mutual funds like the Clough China Fund – Class A (CHNAX), the Guinness Atkinson China & Hong Kong Fund (ICHKX), and the RS China Fund – Class A (RSCHX) are invested in the above companies. As a result, their performance could be impacted negatively.