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China’s Non-Manufacturing PMI Falters: GDP Growth To Fall Below 9%!
By: Investment Postcards from Cape Town   Monday, November 7, 2011 12:50 PM
Symbols: PMI
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.

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