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5 May 2015
China: Additional stimulus on its way? - BBH
FXStreet (Guatemala) - Analysts at Brown Brothers Harriman noted that HSBC reported its final manufacturing PMI at 48.9 vs. the 49.2 flash reading for China.
Key Quotes:
"It will report services and composite PMI Wednesday, but these will likely be overshadowed by China's trade and inflation measures due in the second half of the week. After a shockingly small trade surplus in March ($3.1 bln), we expect lunar New Year distortion to fade. The trade surplus is expected to jump toward $34.25 bln, helped by a recovery in exports (2.9% consensus vs. -15%), while imports remain depressed (-9.8% consensus vs. -12.7%) by weak prices of commodities and a slowing economy."
"Fears of imminent deflation are likely exaggerated. Consumer prices in April are expected to have risen to 1.6% from 1.4% in March. Deflation remains evident in producer prices, which it has for three years. The last time China's producer prices rose on a year-over-year basis was in January 2012."
"Part of the rally in Chinese shares (37% year-to-date advance for Shanghai and 60% for Shenzhen) has been fueled by expectations for additional stimulus by officials. However, the stimulus may be targeted rather than broad, and the technical indicators are flashing caution. The RSI has not confirmed the recent run-up (bearish divergence) and the MACDs are about to turn lower."
"That said, China's equity market rally has been driven by domestic participants, while global fund managers have been reducing their exposure. According to Morningstar data, international investors were net sellers of $4.4 bln of greater China equity funds last year. It was the fourth consecutive year of divestment. The sales have been largely accounted for by the international funds domiciled in Europe (but distributed globally). This year has begun off in similar fashion with net sales of $1.8 bln."
Key Quotes:
"It will report services and composite PMI Wednesday, but these will likely be overshadowed by China's trade and inflation measures due in the second half of the week. After a shockingly small trade surplus in March ($3.1 bln), we expect lunar New Year distortion to fade. The trade surplus is expected to jump toward $34.25 bln, helped by a recovery in exports (2.9% consensus vs. -15%), while imports remain depressed (-9.8% consensus vs. -12.7%) by weak prices of commodities and a slowing economy."
"Fears of imminent deflation are likely exaggerated. Consumer prices in April are expected to have risen to 1.6% from 1.4% in March. Deflation remains evident in producer prices, which it has for three years. The last time China's producer prices rose on a year-over-year basis was in January 2012."
"Part of the rally in Chinese shares (37% year-to-date advance for Shanghai and 60% for Shenzhen) has been fueled by expectations for additional stimulus by officials. However, the stimulus may be targeted rather than broad, and the technical indicators are flashing caution. The RSI has not confirmed the recent run-up (bearish divergence) and the MACDs are about to turn lower."
"That said, China's equity market rally has been driven by domestic participants, while global fund managers have been reducing their exposure. According to Morningstar data, international investors were net sellers of $4.4 bln of greater China equity funds last year. It was the fourth consecutive year of divestment. The sales have been largely accounted for by the international funds domiciled in Europe (but distributed globally). This year has begun off in similar fashion with net sales of $1.8 bln."