Previously high-flying Chinese stocks have suffered mightily over the past week and at least part of the “problem” is good data.
A string of upbeat reads on a variety of activity indicators and a rebound in credit growth have forced markets to ponder whether Beijing might be inclined to take a less aggressive approach to stimulus going forward. That’s weighed on sentiment in Mainland shares, which were world-beaters in Q1 rising ~30%.
The problem with good news becoming “bad” news is that any subsequent weakness that comes through in the data has to be bad enough to rekindle stimulus hopes. In other words, once good news becomes “bad” (to the extent it argues for less accommodation), the risk is that there’s no way to put a positive spin on mediocre data.
Cue April PMI data out of China which missed. The April manufacturing PMI printed 50.1, barely in expansion territory and missing consensus of 50.5. The range was 49.8-51.1. This marks a deceleration from March’s celebrated read.
Meanwhile, the non-manufacturing gauge ticked lower too, to 54.3 from 54.8 last month. It missed estimates as well. The composite PMI fell to 53.4 from 54 last month.
Unfortunately, the Caixin PMI also missed, printing 50.2 for April, down from 50.8 in March. Output and new orders fell.
The bottom line is that the data is somewhat disappointing, especially in light of recent blowout prints on a hodgepodge of indicators which all seemed to suggest that the Chinese economy was on the verge of inflecting.
It wasn’t all downbeat, though. New export orders were a bright spot underneath the official gauge, jumping to 49.2, a marked improvement over the past few months. That would appear to underscore the notion that the external backdrop is brightening in line with March’s export beat.
Additionally, we’re still in expansion territory on both manufacturing gauges.
Needless to say, April’s numbers probably aren’t bad enough to get the “kitchen sink” stimulus discussion going again, but on the other hand, they may be just bad enough to be “good” if they underscore the need for the PBoC to remain vigilant and for Beijing to stay focused on pushing ahead with target fiscal measures.