Daiwa: China Economy- PMI gains on stronger activities

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


China Economy
PMI gains on stronger activities but cost pressure keeps rising


Summary
• A pick-up in output and export orders  is good news, but input prices keep
rising. This means inflation and margin pressure on producers keeps rising. But
relaxation on capacity means likely strong restocking as we enter the new year.



Fundamentals
• The PMI rose to 55.2 for November from 54.7 for October, better than the
consensus forecast of 54.8. The output component led this gain, up 1.4 points to
reach 58.5. Since local governments have been asked to relax the constraints on
energy and factory usage, in order to  reduce the pressures on CPI inflation, it
may have helped output to recover in the near term.
• The gain in export orders is good news. However, a 53.2 reading is still a bit
soft compared with what we have seen typically in November in the past
(except 2008, of course).
• The input price index continued to surge by 3.6 points to reach 73.5, just 2.2
points shy of the peak in June 2008. It has already risen by 23.1 points in the
past four months, on the back of a second wave of inflation for China.
• Despite gains in output and orders, the  import index lost 2.2 points to 50.6,
suggesting the import cost pressure has somehow restricted demand on imports.
Likewise, the purchase-quantity index dropped 0.9 points also to 57.4.
• The two inventory indices, for finished goods and raw materials, gained 2 and
0.2 points but remained below 50, meaning inventories are still contracting
month-on-month, albeit at a weaker pace. The destocking cycle may have been
prolonged by the power usage restriction imposed by some local governments
which tried to achieve their energy-efficiency goal set forth in the  11
th
Five
Year Plan (2006-10). As we are entering the next five-year plan in January
2011, such power usage restrictions should be lifted after December. Therefore,
we expect to see strong restocking activities as we enter the new year.