China’s Business Sentiment gains in June
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 that mark suggests that business confidence is falling.
China’s MNI Business Sentiment Indicator rose sharply in June to 54.5 from 50.0 in May due to the availability of cheaper credit and better credit terms. However, improved credit conditions were offset by flat new orders and sluggish production. Lethargic production led companies to cut down their hiring plans. They felt that the current workforce was adequate to meet current production requirements.
Companies expect overall business conditions to improve
Companies felt that overall business conditions would improve in the next three months despite lower labor requirements. They expect more monetary policy easing by the People’s Bank of China in the coming months.
According to Philip Uglow, chief economist of MNI Indicators, “June’s pickup in business sentiment could be a sign that more expansive policies adopted by the authorities since the beginning of the year are starting to feed through more prominently. Still, confidence over Q2 as a whole was only slightly higher than in Q1, with activity still at a historically low level.”
Impact on funds
Lower production might lead to a slowdown in business. It could result in a decrease in revenues for companies such as Tencent Holdings Limited (TCEHY), China Mobile Limited (CHL), and Taiwan Semiconductor Manufacturing Company (TSM).
Overall, a rise in business sentiment is positive for China-focused funds such as the Clough China Fund – Class A (CHNAX), the Guinness Atkinson China & Hong Kong Fund (ICHKX), the iShares China Large-Cap ETF (FXI), and the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR). They help investors get exposure to Chinese equities.
In the next part, we’ll look at why the International Monetary Fund is positive about China’s economy.