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China PMIs Gain – Green Shoots?, Markets Respond on Strong Volumes, Connect Volume Record?, Bloomberg Barclays Global Aggregate Inclusion Begin

Hope you had a great weekend. I am overseas so today’s report is concise.



Manufacturing PMI 50.5 versus estimate 49.6 and Feb’s 49.2
Non-Manufacturing PMI    54.8 versus estimate 54.4 and Feb’s 54.3
Composite PMI 54 versus Feb’s 52.4 
Takeaway: China’s PMIs surprised to the upside in dramatic fashion as China’s stimulus is beginning to trickle down into the economy. One data series doesn’t mean the skies have cleared though it does provide signs of the first “green shoots”. Within the Manufacturing PMI, new orders rose while new exports orders and imports weakened showing that China’s domestic economy is holding up better than the global economy. Input prices did rise in the month which could be a sign of increased demand. Large companies appear to benefitting the most as they experienced a pick up while both medium and small companies exhibited declines. The non-manufacturing PMI saw input and selling prices rise while new order slipped slightly. Interestingly new export orders jumped in a divergence from manufacturing.  Google Trends allows one to check on how often a term is searched. When one types China Manufacturing PMI you see a multitude of results. When one types China Non-Manufacturing PMI, Google Trends tells you there are not enough search data points. As investors, these numbers tell us to favor large caps over mid/small caps and domestic-oriented companies over exporters.  

Key News

  • China’s trade team will fly to Washington DC for meetings beginning on Thursday following last week’s Beijing meetings. China stopped a tariff increase on US autos in an olive branch gesture.

Hang Seng gained +1.76%/+510 index points on strong volumes above the

1 year

average and +5% higher than Friday’s quarter end close. There were 49 advancers with only China Mobile declining as banks led the Hang Seng higher with CCB, HSBC and ICBC gaining 2.53%, 1.33%

and

2.78%. One broker noted that banks outperformance was driven not by Friday’s rumor of bank reserve retirement ratio cut but government support of banks increasing lending. Within the MSCI China All Shares’ HK stock 2.84% led by materials 3.31%, financials 2.46%, real estate 2.29%, discretionary 1.62%, energy 1.61%

and

tech 1.1%. The first sign of inflation weighed on staples +0.02%. Southbound Connect volumes were elevated with buyers outpacing sellers by a slim margin. 

Shanghai and Shenzhen gained 2.58% and 3.57% on volumes 25% higher than Friday to eclipse RMB 1 trillion and 2.5X the

1 year

average. Remarkably on 73 stocks declined in mainland China while 3,558 stocks advanced. Notice how this market moves in unison? I’ve often thought it negates the use of active managers. Within the MSCI China All Shares’ mainland stocks +2.84%, materials and tech gained 4.82%, discretionary 3.53%, energy 3.26%, real estate 3.23%, industrials 3.04%, communications 2.77%, healthcare 2.5%, financials 1.94%, staples 1.77% and utilities 1.75%. Northbound Connect volumes were the highest that I’ve seen. I suspect it is a record though can’t confirm. Buying and selling

was

balanced with buyers slightly outpacing sellers though volume leaders Kweichow Moutai and Ping An saw slight selling. 

Today’s price action was very strong. I am not a big fan of broad Emerging Market indices due to their

heavy weights

to financials, industrials, materials

and

energy (~45% of EM). With that

said

today was a value rally with materials and financials outperforming. While I prefer the growth segments of both China and broad EM, today proves a balance is necessary which I am an advocate of. 

China goes into the Bloomberg Barclays Global Aggregate today. I will provide further color tomorrow. 



CNY 6.71

  • Yield on 1 Day Chinese Gov’t Bond 1.84%
  • Yield on 10 Year Chinese Gov’t Bond 3.18%
  • Yield on 10 Year China Development Bank Bond 3.65% 


Commodities were higher on the Shanghai & Dalian Exchanges w/Dr. Copper ripping +1.34%