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Why China’s Official Manufacturing PMI Fell Slightly in April

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Importance of PMI

China’s manufacturing PMI (Purchasing Managers’ Index) is an economic indicator that provides advance insight into how an economy’s manufacturing sector is performing. A reading above 50 indicates that activity is expanding. Below 50 signals a contraction.

The manufacturing PMI is based on five subindexes:

  • production index
  • new orders index
  • employed person index
  • main raw materials inventory index
  • supplier delivery time index
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Official manufacturing PMI ticked down in April

China’s official manufacturing PMI for April was 50.1, down from 50.2 in March. This index is released every month by the National Bureau of Statistics of China. It focuses mainly on large Chinese companies. The data indicate that China’s manufacturing sector is far from revival and confidence among large manufacturers remains weak. This means the government may have to continue to provide stimulus measures to reinforce investor confidence in the economy.

The production index fell to 52.2 in April, from 52.3 in March. The new orders index fell to 51.0 from 51.4 a month ago. The new export orders index came in at 50.1, down from 50.2 in March.

Employment fell at manufacturing firms, and the employed person index fell to 47.8 in April from 48.1 in March. The main raw materials inventory index came in below the threshold at 47.8, from 48.2 a month ago.

Impact on funds

China’s manufacturing sector is affected by overcapacity and global slowdown. So a fall in PMI may have an adverse impact on the performances of China-focused mutual funds such as the Oberweis China Opportunities Fund (OBCHX) and the Matthews China Investor Fund – Class (MCHFX), which have sizable exposure to the industrials sector. This shows that the slowdown in the manufacturing sector is so deep-rooted that even a government stimulus is showing mediocre results.

These mutual funds are invested in stocks of companies such as Tencent Holdings (TCEHY), JD.com (JD), Vipshop Holdings (VIPS), and NetEase (NTES). The performance of these companies has been adversely impacted by sluggish global demand.

Investors can get exposure to Chinese stocks through funds such as the iShares MSCI China (MCHI) and the Deutsche X-trackers Harvest CSI 300 China – Class A (ASHR).

In the next article, we’ll look at the Caixin Manufacturing Purchasing Managers’ Index.

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