Surveys of manufacturing from Asia’s two biggest economies – China and Japan, showed surprising falls yesterday in the so-called ‘flash’ reports issued by HSBC/Markit.
At the same time, the first estimate of March quarter growth for another big economy, South Korea, was a little on the light side according to economists.
The news however failed to worry investors across major Asian stockmarkets, who took it all in their stride.
China stocks advanced to fresh seven-year highs, as did the Taiwan exchange,the Japanese market hit a new 15 year high and South Korea’s market ended near a four year high.
That was despite the weaker-than-expected factory activity data.
Chinese investors are convinced the government will do more to provide stimulus to the economy on top of the two interest rates and 1.5% cuts in the reserve ratios – which has released upwards of $US300 billion to the banks to lend.
Much is that money has been heading for the Chinese – and this month, the Hong Kong markets, hence the continuing gains and the way investors are shrugging off the flow of weak to gloomy economic figures.
The flash HSBC/Markit Purchasing Managers’ Index (PMI) revealed that China’s factory activity in April contracted at its fastest pace in a year, suggesting that economic conditions are still weak and not showing any signs of recovering.
The report for Japan showed activity dipping under a reading of 50 to 49.7 from the final reading for March of 50.3. That was the big surprise, according to economists.
For China, the Markit survey confirmed the pace of the activity for much of March, has continued into April (despite the pick up in the final report for March).
(Readings above 50 indicates expansion, and February is the only month so far this year with a reading above that threshold, and that was a month cut short by the Lunar/Spring festival).
“Production increased only marginally, while total new business declined for the second successive month,” Markit economist Annabel Fiddes said in statement yesterday. “Relatively weak demand conditions were also highlighted by stronger deflationary pressures in the sector, with both input and output prices falling at faster rates.”
But, Julian Evans-Pritchard, China economist at Capital Economics, took a contrary view, saying in a note to clients yesterday that much of the weakness in the April and March surveys is due to seasonal distortions, so shouldn’t necessarily point to a sharp slowdown through the June quarter.
“The upshot is that although momentum appears to have weakened recently we don’t see a reason to be overly concerned,” he said. “Monday’s (it was actually Sunday) cut to the required reserve ratio will have come too late to have much impact on today’s reading but should help shore up activity over the coming months and we also expect policy makers to roll out more support measures to ensure that growth doesn’t slip much further.”
In Japan, the survey index fell below the 50 for the first time since May last year as new orders fell to a preliminary 48.5 from 49.4 in March, contacting for a second straight month and at a faster pace. The output index fell to 49.7 in April, its first contraction in nine months.
The index for new export orders also fell to a preliminary 51.0 from a final 52.0 in the previous month, but continued to expand as the weak yen helped improve Japanese exporters’ price competitiveness (as we might have seen in the 8.5% jump in exports in March).
Data issued yesterday showed South Korea’s economy grew at the slowest rate in two years, in the three months to March.
The news brought further fuelling calls for additional stimulus measures to boost the economy.
GDP grew a seasonally adjusted 0.8% in the March quarter, up from the 0.3% growth in the last quarter of 2014.
Earlier this month, the Bank of Korea called on the government to take fiscal measures to stimulate the economy, citing weak public spending as a drag on growth.
The central bank has cut its growth forecast for this year to 3.1% from 3.4%, as the central government battles a rising short fall in tax revenues and responds by cutting its spending plans.
Exports have fallen every month this year, and the 4.2% fall in the year to March was the largest fall in two years. Inflation is running at a 16 year low of 0.4% (thanks to the plunge in oil and gas prices). But consumers are not confident to spend those savings and private consumption rose a mere 0.6% in the March quarter.
