The Conference Board
The Conference Board is a global, independent business membership and research association that publishes leading and composite economic indexes for various countries.
The Conference Board’s Leading Economic Indicator (or LEI) for China aggregates six economic indicators that measure economic activity in China. They are:
- total loans issued by financial institutions
- raw materials supply index
- manufacturing purchasing managers’ index (or PMI) supplier deliveries
- consumer expectations index
- total floor space started
- manufacturing PMI export orders
The Conference Board’s LEI
The Conference Board’s Leading Economic Indicator (or LEI) for China rose 0.6% in November, following a 0.3% rise in October and a 1.6% increase in September.
Total loans issued by financial institutions made the largest contribution to the index. The 5,000 industry enterprises diffusion index, which included raw materials supply index, and the consumer expectations index increased in November. While the total floor space started, the PMI new export orders index and the inverted PMI supplier delivery index declined in November.
The rise in LEI indicates that the financial reforms implemented by the Chinese authorities are showing results and the economy is stabilizing, albeit slowly. But the persistent weaknesses in exports and the manufacturing sector may continue to put downward pressure on the Chinese economy.
The Conference Board’s CEI
The Conference Board’s Coincident Economic Index (or CEI) for China, which measures current economic activity, grew 0.6% in November 2015. The CEI had a 2.2% increase in October and a 1.5% decline in September.
Electricity production, retail sales of consumer goods, value-added industrial production, and manufacturing employment increased while the volume of passenger traffic declined in November.
Impact on mutual funds
With a rise in bank loans, the financial sector could benefit. In October, the PBoC cut its one-year benchmark bank lending rate by 25 basis points to 4.35%, the sixth rate cut since November 2014. It also trimmed its reserve requirement ratio (or RRR) by 50 basis points to 17.5%, making it the fifth rate cut in the RRR since November 2014. This is expected to lead to an increase in borrowing and lending activity, which would be helpful for the financial sector.
China-focused mutual funds such as the AllianzGI China Equity Fund – Class A (ALQAX), the Eaton Vance Greater China Growth Fund (EVCGX), and the Shelton Greater China Fund (SGCFX), which have more than 30% exposure to financials, stand to gain.
However, the decline in export orders and sluggish growth in the manufacturing sector may continue to have a negative impact on American depositary receipts (or ADRs) such as Ctrip.com International (CTRP), 58.com Inc. (WUBA), Taiwan Semiconductor (TSM), CNOOC Limited (CEO), and China Mobile Ltd. (CHL).