A Chinese manufacturing gauge rose to a five-month high in May, sending Asian stocks higher on speculation the economy is stabilizing after government moves to counter a slowdown.
A preliminary purchasing managers’ index from HSBC Holdings Plc and Markit Economics was at 49.7, exceeding the 48.3 median estimate of analysts surveyed by Bloomberg News and a final reading of 48.1 in April. The number remained below the expansion-contraction line of 50.
The report showed rebounding output and orders, fueling optimism Chinese demand will be sustained after after the government announced tax breaks and accelerated spending on railways to protect a 7.5 percent annual growth target. At the same time, a property slump and slowing investment and retail sales threaten the pace of expansion.
“A few industries that are sensitive to the mini-stimulus may have started to benefit from the pro-growth policies,” said Xu Gao, chief economist for Everbright Securities Co. in Beijing, who previously worked at the World Bank. “It’s still too early to conclude that a quick rebound is taking place in the Chinese economy,” as funds available for projects on the ground remain tight and property weakness persists, he said.
The MSCI Asia Pacific Index of stocks extended gains after the report, increasing 1.2 percent at 4:13 p.m. in Tokyo, while the Hang Seng China Enterprises Index was up 1.2 percent. Copper and the Australian dollar also advanced.
The manufacturing report, known as the Flash PMI, is typically based on 85 percent to 90 percent of responses to surveys sent to purchasing managers at more than 420 companies. The final reading will be released June 3.
Estimates of today’s number from 26 analysts ranged from 47.7 to 48.7.
A similar figure from the National Bureau of Statistics and China Federation of Logistics and Purchasing will be published June 1. That gauge rose to 50.4 in April from 50.3 in March.
Growth in industrial production, fixed-asset investment and retail sales unexpectedly decelerated in April and the property market has cooled, with a 22 percent drop in new building construction in the first four months.
Besides a government package of spending on railways and housing, and tax relief, the central bank has cut reserve requirements for some rural banks and called on the biggest lenders to accelerate the granting of home mortgages.
“Some tentative signs of stabilization are emerging, partly as a result of the recent mini-stimulus measures and lower borrowing costs,” Qu Hongbin, chief China economist at HSBC in Hong Kong, said in a statement. “But downside risks to growth remain, particularly as the property market continues to cool. We think more policy easing is needed to put a floor under growth in the coming months.”
While subindexes showed output, new orders and export orders all expanding, another gauge showed employment shrinking at a faster pace, according to HSBC and Markit. The jobs measure “implies that this month’s uptick in sentiment has not yet filtered through to the labor market,” Qu said.
China’s State Council, or cabinet, said yesterday that the government will speed up construction of projects to save and supply water. It will also double venture capital it provides for emerging industries it didn’t specify. Goldman Sachs Group Inc. economists characterized yesterday’s actions as “loosening measures” and said more are on the way.
The world’s second-largest economy grew 7.4 percent in the first quarter from a year earlier, slowing from a 7.7 percent pace in the previous period, according to government figures. Analysts surveyed by Bloomberg News this month forecast 7.4 percent expansion in the second quarter and 7.3 percent in July-to-September, based on median estimates.
The median projection of economists for full-year growth of 7.3 percent would mark the weakest pace since 1990.
The seven-day repurchase rate, a gauge of funding availability, has averaged about 3.41 percent this quarter, down from 4.04 percent in the previous period, based on a daily fixing by the National Interbank Funding Center.
China’s growth fundamentals haven’t changed and the country is still in a “significant period of strategic opportunity,” President Xi Jinping said in a Xinhua News Agency report published May 10. At the same time, the government must prevent risks and take “timely countermeasures to reduce potential negative effects,” he said.
Signs of contraction in the HSBC-Markit PMI don’t mean industrial production is declining on an annual basis. Factory output rose 8.7 percent in April from a year earlier, according to a National Bureau of Statistics report.
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