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Why Westpac MNI China Consumer Sentiment Ticked Down in July

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Westpac MNI China Consumer Sentiment Indicator

The Westpac MNI China Consumer Sentiment Indicator (or CSI) is made up of five major sub-indicators namely:

  • durable buying conditions
  • current business conditions indicator
  • stock investment indicator
  • real estate investment indicator
  • car purchase indicator

The Westpac MNI China CSI fell by 1.6% to 114. 0 in July from 115.9 in June as consumers were worried about their personal incomes due to weakness in the labor market. These consumers were hesitant to purchase luxury items.

All five components of the CSI fell between June and July, with measures of both current and future household finances and durable buying conditions having a more pronounced downward impact.

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Chinese consumers are concerned about personal income

Consumers were less optimistic about their current and future household income. The weakness has come in tandem with a decline in the respondents’ views about the job market.

Senior economist of MNI Indicators, Andy Wu, said, “The slight softening in consumer confidence cautions about getting too optimistic over the outlook for the second half of the year.”

According to Westpac senior economist, Matthew Hasan, “While overall the fall in sentiment is not large it again casts doubt about the sustainability of recent improvements. Whether Chinese consumer confidence weakens further or regains its upwards momentum in the months ahead will be a critical factor for economic activity particularly while export sectors and investment activity remain soft.”

Impact on funds

The decline in consumer sentiment is negative for entire consumer and retail sector. Further, consumers are not interested in spending on luxury items, which may have an adverse impact on the performance of the American depositary receipts (or ADRs) of Chinese consumer discretionary companies.

These companies include Ctrip.com International (CTRP), Jumei International (JMEI), Homeinns Hotel Group (HMIN), New Oriental Education (EDU), and Qunar Cayman Islands Ltd. (QUNR).

Moreover, lower consumer sentiment does not bode well for the China-focused funds such as the iShares MSCI China ETF (MCHI) and the SPDR S&P China ETF (GXC), which are invested in the aforementioned companies.

In the final article in this series, we’ll analyze China’s MNI Business Sentiment Indicator for July.

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