uploads///Caxin Composite PMI

Caixin China Services and Composite PMI Weakened Further in May


Jun. 6 2016, Updated 9:09 a.m. ET

Caixin China Services PMI

Caixin China General Services Business Activity Index data indicated that service activity expanded at a slower pace in May 2016, coming in at 51.2 compared to 51.8 in April. A reading of below 50 indicates that activity is falling, while a reading of above 50 indicates an increase in activity. The data pointed to the weakest increase in service sector business activity since February 2016.

Service companies reported slower growth in new orders in May, while employment rose at a modest pace. The level of outstanding business at service providers rose for the second consecutive month, albeit at a very slow pace. Average input costs fell due to weakening inflation, while output costs rose due to higher cost burdens.

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Service sector optimism toward the 12-month business outlook dipped to its lowest level in 2016 in May. A number of companies forecast that improving client demand and planned company expansions would support higher business activity over the next year, but there were reports that an uncertain economic outlook weighed on the overall level of business confidence.

Caixin China Composite PMI

Caixin China Composite PMI data, which cover both manufacturing and services, reported a further rise in total Chinese business activity in May, albeit at a slower pace. However, the Composite Output Index posted a level of 50.5 compared to 50.8 in April. This signaled the slowest rate of expansion in the current three-month sequence of growth.

At the composite level, new business rose marginally in May, with the latest increase being the slowest since February. However, employment fell at the composite level as job shedding continued at factories. Also, the level of unfinished work and input costs increased at the composite level.

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Commenting on the China General Services PMI data, Dr. Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said, “Underlying structural changes are still going on, with the manufacturing sector shrinking and services expanding. The government needs to continue to push forward stabilizing measures to help the economy recover. It should also relax the control and regulation of the services sector to enable it to realize its growth potential and to facilitate the transformation and healthy development of the economy.”

Impact on funds

Financials, information technology, telecommunication services, and healthcare are the four major service sectors. The Columbia Greater China Fund Class A (NGCAX) and the China Clough Fund Class A (CHNAX) have sizable exposures to these sectors.

Slow expansion in the service sector will lead to marginal rises in the revenues and profits of companies such as China Biologic Products (CBPO), Baozun (BZUN), Vipshop Holdings (VIPS), and Baidu (BIDU), in which the above-mentioned mutual funds are invested.

Investors can take exposure to Chinese stocks through ETFs such as the iShares MSCI China ETF (MCHI) and the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR).

In the next article, we’ll look at the Chinese yuan’s position in global currency payments in April.


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