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Why Westpac MNI China’s Consumer Sentiment Picked Up

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Westpac MNI China’s Consumer Sentiment Indicator

Westpac MNI China’s Consumer Sentiment Indicator (or CSI) is made up of five major sub-indicators—durable buying conditions, current business conditions, stock investment, real estate investment, and car purchases.

The Westpac MNI China CSI rose 1.5% to 115.9 in June from 114.2 in May, which shows that increased policy support continues to trickle through to the real economy. Between May and June, four of the five components of the headline indicator increased. Household finances outperformed while the long-term outlook for business was the only component that fell. Over the quarter, sentiment averaged 116.0 in Q2, up from 114.8 in Q1—the highest outturn since Q3 2015.

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Chinese consumers have become risk-averse

The increased pressure on household incomes has manifested in a more risk-averse approach to savings and investment decisions. Further, consumers assessed that business conditions have improved. They had positive views on the economic outlook due to the stimulus provided by the government. However, as cracks appeared in the recovery in official data for the housing market, consumers pared their enthusiasm for buying a house, and expectations for house prices slipped.

According to the chief economist of MNI Indicators Philip Uglow, “June’s broad-based increase in sentiment and more positive showing in Q2 suggests that stimulus measures may well be having some impact. Significant risks remain, though, with cooling attitudes towards real estate and respondents becoming significantly more risk averse in their attitudes towards saving in recent months.”

Impact on funds

The rise in consumer sentiment is positive for the entire consumer and retail sector. This increase should benefit mutual funds such as the Clough China Fund – Class A (CHNAX), which have considerable exposure to stocks in the consumer discretionary sector. ETFs such as the iShares MSCI China ETF (MCHI) and the SPDR S&P China ETF (GXC) should also benefit. These funds invest in the American Depository Receipts (or ADRs) of Chinese consumer discretionary companies such as Ctrip.com International (CTRP), Jumei International (JMEI), Homeinns Hotel Group (HMIN), New Oriental Education (EDU), and Qunar Cayman Islands (QUNR).

For more updates and analysis on mutual funds, please visit Market Realist’s Mutual Funds page.

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