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China’s MNI Business Sentiment Fell in May

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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 business sentiment is growing. A reading under 50 suggests that business confidence is falling.

China’s MNI Business Sentiment Indicator fell to 50.0 in May from 50.5 in April. The fall in new orders was offset by an increase in production. However, firms were more optimistic that the situation might change over the next three months.

The production indicator increased for three consecutive months, even as overall confidence flatlined over the same period. Companies reported the easy availability of credit due to easing measures introduced by Beijing since 2014. This supported growth and demand.

However, with the slow and uncertain economic recovery, expectations for overall business conditions are down.

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Road ahead

According to Philip Uglow, the chief economist of MNI Indicators, “A year and a half since the authorities embarked on the current programme of monetary stimulus, the MNI China Business Sentiment Indicator is still languishing at a low level. Measures of credit availability in the survey show that looser policy is flowing through to companies on our panel, although it’s having only a limited impact on the real economy metrics of output and orders.”

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

Impact on funds

A fall in production could lead to a decrease in business and revenue for companies such as Tencent Holdings (TCEHY), China Mobile (CHL), and Taiwan Semiconductor Manufacturing Company (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).

In the next part, we’ll look at China’s Westpac MNI Consumer Sentiment Indicator.

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