The economy is
still somewhat stronger than in October 2008 when the great global
financial crisis started.
Sources: CFLP; Li & Fung; Plexus Asset Management.
The
outlook for China's GDP growth in the fourth quarter is grim as my
seasonally adjusted GDP-weighted PMI indicates that growth on a year-ago
basis is likely to fall below 9%. I estimate that growth will
approximate 8.9% from 9.1% in the third quarter. Growth in the first
quarter next year is also likely to decline further to around 8.5%.
Sources: CFLP; Li & Fung; Dismal Scientist; Plexus Asset Management.
The
outlook for the CFLP non-manufacturing PMI in November is not rosy at
all. I expect the PMI to fall to between 50 and 51 as November is the
second-worst month from a seasonal point of view. By implication I
therefore expect the seasonally adjusted non-manufacturing PMI to drop
to approximately 53.0 from 54.6 in October.
But
how will the Chinese stock market react to such a steep drop in the
manufacturing PMI? It is evident that in the past the CFLP
non-manufacturing PMI had little bearing on China's stock market.
Sources: CFLP; I-Net Bridge; Plexus Asset Management.
The
CFLP manufacturing PMI is more closely watched by the market, which is
currently anticipating an unchanged to slightly higher PMI in November.
Sources: CFLP; Li & Fung; I-Net Bridge; Plexus Asset Management.
Japan's
recovery from the twin disasters earlier this year will continue to
impact on the health of China's manufacturing sector.
Sources: CFLP; Li & Fung; Markit; Plexus Asset Management.
China's
manufacturing sector and therefore China's stock market remain
vulnerable to another global financial crisis such as in 2008/2009.
Sources: CFLP; Li & Fung; Plexus Asset Management.