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China’s MNI Business Sentiment Expanded in April, Caution Prevails

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China’s business sentiment

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 that mark suggests that business confidence is falling.

China’s MNI Business Sentiment Indicator expanded to 50.5 in April from 49.9 in March due to stimulus measures from Chinese authorities to boost economic growth. However, the survey showed that the firms have serious concerns about the sustainability of reforms. Future epectations fell sharply to the lowest level in the history of the series.

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Both production and new orders picked up in April. The New Orders Indicator rose 8.3% and production increased by 0.9%. In April, the Employment Indicator increased to its highest level since December 2011. Meanwhile, firms reported a slight deterioration in credit conditions during April. The Availability of Credit Indicator fell by 0.8%.

With the slow and uncertain economic recovery, the expectations for overall business conditions fell to the lowest level since the series started in March 2007.

Road ahead

Philip Uglow, chief economist of MNI Indicators, said that “the MNI China Business Sentiment Indicator increased into expansionary territory as new orders picked up significantly. There was also a sharp jump in the employment component, with an increasing number of firms reporting that they needed more workers. Against this, the survey results show that companies turned pessimistic about the coming three months which suggests the recovery of the Chinese economy is unlikely to be smooth.”

China’s gross domestic product grew 6.7% in the first three months of 2016. It was in line with Market expectations after Beijing introduced easing measures since 2014 to support growth and demand.

Impact on mutual funds

The rise in production and new orders could lead to an increase in business and revenue for companies such as Tencent Holdings (TCEHY), China Mobile (CHL), and Taiwan Semiconductor Manufacturing (TSM).

China-focused mutual funds such as the Clough China Fund – Class A (CHNAX), the Guinness Atkinson China & Hong Kong Fund (ICHKX), and the RS China Fund – Class A (RSCHX) provide exposure to Chinese shares. Investors can also invest in ETFs like the iShares China Large-Cap ETF (FXI) and the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR).

For more analysis on mutual funds, please visit Market Realist’s Mutual Funds page.

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