Macro Monday 44~China NBS PMI & Manufacturing Caixin PMIMacro Monday 44
The China NBS PMI and Manufacturing Caixin PMI
(both released Tuesday 30th April 2024)
China NBS General PMI – Surveys by 3,200 large corporations
▫️ Provided by the National Bureau of Labor Statistics
▫️ Based on a large sample size surveying 3,200 companies across China.
▫️ The NBS PMI has a stronger focus on larger state-owned firms.
▫️ Recently increased from 50.9 in Feb 2024 to 52.7 in Mar 2024 (>50 = Expansionary)
China Manufacturing Caixin PMI – Surveys by 650 SME’s
▫️ The is an S&P Global report released monthly.
▫️ The Caixin PMI focuses on small & medium sized enterprises (SME’s) in China.
▫️ Surveys a smaller sample size of 650 private and state owned manufacturers.
▫️ Recently increased from 50.9 in Feb 2024 to 51.1 in Mar 2024 (>50 = Expansionary)
N.B: The China Services Caixin PMI will be released Monday 6th May which when combined with the China Manufacturing Caixin PMI will form the all encompassing China Caixin Composite PMI. We will cover the China Services and Composite PMI next week on Monday 6th May 2024.
Both the Manufacturing Caixin PMI and the China NBS General PMI are of companies that are mostly export-orientated & located along China’s Costal Regions. These are the manufacturing and export hubs of China, the likes of major coastal regions such as Guangdong, Zhejiang, and Shanghai which have strategic access to ports and shipping routes.
China, the 2nd largest economy in the world at approx. $18 trillion is often referred to as the world’s manufacturing superpower. In 2019, the Chinese manufacturing sector contributed nearly $4 trillion towards the country’s total economic output.
Manufacturing accounted for almost 30% of China’s GDP during 2019 demonstrating the importance of manufacturing and the surveys completed by the manufacturers through the Purchaser Managers Index (PMI) surveys. Incredibly, in 2023 China’s manufacturing continued to increase and contributed 31.7% to China GDP, furthermore China’s exports reached record highs of $3.36 trillion in 2023.
For a country that gets a lot of bad economic press, the economic data from manufacturing and exports suggests China is adaptable and is currently in expansionary territory. This will be further evident from both the PMI charts we are about to review below.
Like most PMI’s the data will generally be derived from the following sub indices; New Orders, Output, Employment, Supplier Deliveries and Inventories.
Reading both PMI’s:
>50 indicates expansion in the manufacturing sector compared to the previous month.
< 50 represents contraction
A reading of 50 indicates no change.
The Charts
China NBS General PMI – Surveys from 3,200 large corporations (subject chart above)
▫️ After hitting an all time low of 28.9 in Feb 2020 from the COVID-19 pandemic, China’s NBS General PMI has experienced significant fluctuations.
▫️ The NBS PMI made two subsequent significant lows in Apr and Dec 2022 at approx. 42.6.
▫️ By March 2023, the PMI reached an all-time high of 57.0, indicating strong expansion in both manufacturing and non-manufacturing sectors.
▫️ This fell to a low of 50.3 in Dec 2023, and since then we have risen to 52.7 in Mar 2023.
🚨 Next release for April is released this Tuesday 30thApril 2024.
China Manufacturing Caixin PMI – Surverys from 650 SME’s
▫️ The China Manufacturing Caixin PMI for smaller SME’s has demonstrated a series of higher lows since February 2020 demonstrating a strong recovery out of the COVID-19 pandemic.
▫️ Momentarily reaching all time highs of 54.9 Nov 2020, thereafter falling significantly to 46 in April 2022, since then the Manufacturing Caixin has pressed into expansionary territory of 51.1 (March 2024).
▫️ This was the fifth straight month of growth in factory activity and the fastest pace since February 2023, boosted by higher new orders from domestic and abroad, with foreign sales rising the most in a year while output climbed the most since last May.
🚨 Next release for April is released this Tuesday 30thApril 2024.
Both PMI's are in expansionary territory which is positive news for China production and exports. SME's appear to have made a more gradual and measured recovery in the Caixin PMI versus the volatile nature of the large corporations in the NBS PMI. Regardless both are swinging higher towards 52 or 53 placing them in the expansionary mode.
Potential Trade Set Up
On a separate note, adding to China's expansionary potential from above economic data and the PMI charts, one of the worlds greatest traders Peter Brandt
@PeterLBrandt
recently posted a potential buy signal one of Chinas main indexes, the Heng Seng Index which looks to have formed a Head and Shoulders bottom with a recent break out (see most recent post under this one).
The Heng Seng Index (HSI) serves as a great proxy for Asian markets, its the main indicator of the overall market performance in Hong Kong and includes 82 constituent companies, representing about 60% of the total capitalization of the Hong Kong Stock Exchange. The companies in the HSI are considered blue chips and thus the index operates a good basal gauge of market sentiment in China. Definitely a chart to add to your arsenal for Asian markets.
All these charts are available on my Tradingview Page and you can go to them at any stage over the next 5 - 10 years press play and you'll get the chart updated with the easy visual guide I provided. I hope its helpful
Lets get after this week 💪🏻
PUKA
