Data released by the flash HSBC-Markit Purchasing Managers’ Index (PMI) showed a contraction in Chinese factory activity in April, the fastest pace in a year. The index fell below the 50-point level that separates growth from contraction on a monthly basis to 49.2 points. There was a brief rebound in February during the holiday season, but the index has now fallen into the sub 50-point level for two months consecutively. An analysts survey through Reuters showed the forecast matched the final reading from March at 49.6 points. Export orders rose for the first time in three months, but that was more than offset by a significant decline in employment and a decrease in both import and export prices.
Deflationary worries are putting pressure on Chinese policy makers. Interest rates in China have been slashed twice since November. In addition to a slowing manufacturing industry and industrial overcapacity, China also has a slowing property market that is showing signs of risky shadow banking loans propping up the industry. Local and corporate debt are also of concern for the Asia giant. The Shanghai Composite has nonetheless continued to surge. The largest Chinese stock exchange is up over 100 per cent in the last 12 months and is up .37 per cent so far on Thursday, despite the negative data. Analysts have warned against the rally in Chinese shares, citing the high amount of debt fuelling the gains. Commonwealth Bank senior strategist Elias Haddad cited data from both China and the US as factors for the drop in the ASX on Thursday, commenting “those figures have undermined the Australian dollar and the strength of the US dollar is also weighing on the Aussie.”
Author: Imran Valibhoy
Apr 23, 2015
Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.