China’s Official Manufacturing PMI Slipped Further in January
China's Manufacturing Downturn Extends into 2016
Meaning and importance of PMI
The manufacturing purchasing managers’ index (or PMI) is an economic indicator that provides a snapshot of the manufacturing sector of an economy. A reading above 50 indicates that the activity is expanding while a reading below 50 signals a contraction. The metric provides advanced insight as to how the manufacturing sector of the economy is performing.
The manufacturing PMI is based on five subindexes: the production index, the new orders index, the employed person index, the main raw materials inventory index, and the supplier delivery time index.
Official manufacturing PMI ticked down in January
China’s official manufacturing PMI (or purchasing managers’ index) reading for January came in at 49.4 as compared to 49.7 in December. This index is released every month by the National Bureau of Statistics in China, and it focuses mainly on large Chinese companies.
The production index was 51.4, down from 52.2 in December, which indicates that the manufacturing production kept expanding while the growth rate slowed down. The new orders index was 49.5, down from 50.2 a month ago. It dropped below the threshold, showing that the market demand of the manufacturing sector fell.
The employed person index was 47.8, up 0.4% month-over-month, but it was still in the contraction range, indicating that the pace of decline of labor employment for manufacturing enterprises narrowed.
The main raw materials inventory index was 46.8, a decrease of 0.8% over last month. It continued to stay below the threshold, indicating that the inventory of main raw materials continued to decrease. Meanwhile, the supplier delivery time index was 50.5. It was above the threshold, indicating that the delivery time of raw material suppliers has accelerated.
Impact on mutual funds
China-focused mutual funds such as the AllianzGI China Equity Fund – Class A (ALQAX), the Guinness Atkinson China and Hong Kong Fund (ICHKX), the Shelton Greater China Fund (SGCFX), and the U.S. Global Investors China Region Fund – Investor Class (USCOX) have large exposure to the industrials sector. The performance of these mutual funds has definitely taken a hit due to a slowdown in the manufacturing sector.
The above mutual funds are invested in companies like Taiwan Semiconductor Manufacturing Company Limited (TSM), Sinopec (SNP), Tencent Holdings (TCEHY), Ping An Insurance Group Co. of China (PNGAY), and China Mobile (CHL). The performance of these companies has been adversely impacted due to weak global demand and the uncertain economic outlook.
In the next article, we will look at China’s official non-manufacturing purchasing managers’ index.
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