Caixin China Services PMI
The Caixin China General Services Business Activity Index expanded at a slower pace in July to 51.7, down from 52.7 in June. A reading below 50 indicates that activity is contracting, while one above 50 indicates expansion. The data indicated that the rate of services activity growth has slowed down since June and was moderate overall.
Service companies reported a slowdown in the rate of growth of new orders. Employment fell, although only marginally. The level of outstanding business at service providers increased, albeit slowly. Average input costs rose slightly at service companies, while the rate of inflation rose slightly in July.
Caixin China Composite PMI
Caixin China Composite PMI data, which covers both manufacturing and services, signaled a stronger expansion in Chinese business activity at the start of the third quarter. The Caixin Composite Output Index rose from 50.3 in June to 51.9 in July, the fastest rate of growth since September 2014.
At the composite level, new orders rose at the fastest pace since February 2015. Growth of overall business was primarily due to an increase in orders at manufacturing companies. Companies across the manufacturing and services sectors lowered workforce numbers through the implementation of cost-cutting initiatives. The level of unfinished work and input costs also increased at the composite level.
According to Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said, “All of the index categories showed signs of deterioration, with employment falling back into the territory of contraction after three consecutive months of growth. The improvement underlined by the composite index was mainly caused by a marked expansion in the manufacturing sector, despite service activity growing at a slower pace. Implementation of supportive measures including proactive fiscal policies must continue to protect the recovery, and regulations in the services sector should be further relaxed.”
Impact on funds
Financials, information technology, telecommunication services, and healthcare are four major service sectors. China-focused funds such as the Columbia Greater China Fund – Class A (NGCAX), the China Clough Fund – Class A (CHNAX), the iShares MSCI China (MCHI), and the Deutsche X-trackers Harvest CSI 300 China A (ASHR) have exposure to these sectors.
Modest growth in the service sector would lead to a rise in revenues and margins of companies such as China Biologic Products (CBPO), Baozun (BZUN), 58.com (WUBA), and Baidu (BIDU), in which the above mutual funds are invested.