Meaning and importance of PMI
China’s manufacturing PMI (purchasing managers’ index) is an economic indicator that provides a snapshot of the manufacturing sector of the economy. A reading above 50 indicates that activity is expanding while a reading below 50 signals a contraction. It’s released every month by China’s National Bureau of Statistics.
The manufacturing PMI is based on variables such as output, new orders, employment, and prices across key sectors. The variables provide advance insight on how the manufacturing sector of the economy is performing.
Official manufacturing PMI ticked down in November
China’s official Manufacturing PMI reading for November was slightly down and came at 49.6 as compared to 49.8 in October. This index is released every month, mainly focusing on large Chinese companies.
The new orders index fell to 49.8 in November from 50.3 in October, while the production index was down to 51.9 from 52.2 in the previous month. The new export orders index was also down to 46.4 from the 47.4 recorded in October. Thus, the overall sentiment is still weak in the manufacturing sector. The stimulus measures introduced by Chinese authorities have showed little impact on the manufacturing sector, and hence more financial reforms could be warranted.
Impact on mutual funds
The AllianzGI China Equity Fund – Class A (ALQAX) has the largest exposure of 19.9% to the industrials sector among the funds in this review as of September 30, 2015. Meanwhile, the Guinness Atkinson China and Hong Kong Fund (ICHKX), the Shelton Greater China Fund (SGCFX), and the US Global Investors China Region Fund – Investor Class (USCOX) have 13.8%, 11.3%, and 11.2%, respectively, of their assets invested in companies from the industrials sector as of September 30, 2015. The performance of these mutual funds has taken a hit due to a slowdown in the manufacturing sector.
The mutual funds mentioned above are invested in stocks of companies such as Taiwan Semiconductor Manufacturing (TSM), Sinopec (SNP), Tencent Holdings (TCEHY), Ping An Insurance Group Co. of China (PNGAY), and China Mobile (CHL). The performance of these companies has been adversely impacted due to weak global demand and uncertain economic outlook.
In the next article, we’ll look at China’s official non-manufacturing PMI.