IB Net Payout Yields Model

China PMI Improves Though Remains Negative

The HSBC Purchasing Manager's Index inched up to 48.7 in December from 47.7 in November. Though still negative it is a number that economists equate with 12-12 percent industrial output.

The number has been holding just sub 50 since July so at least the stability is suggestive of a soft landing. Not to mention China has already begun an easing process that should help going forward. Lower inflation followed by low PMIs will allow for quicker policy cuts especially on bank reserves.

  • HSBC Purchasing Manager's Index inched up to 48.7 in December from a 32-month low of 47.7 in November but fell short of the flash reading of 49.
  • HSBC believes a PMI reading of as low as 48 in China still points to annual growth of 12-13 percent in industrial output. 
  • Still, analysts are looking for signs of stabilisation in the factory sector and are anticipating a shift by Beijing to a more supportive economic policy stance to prevent a sharp slowdown.  

Chinese stocks have been attempting to stabilize near 3 year lows providing a great entry point at roughly 11x earnings. Remember that the US has typically traded at 15x earnings and the GDP has averaged something around 4% historically. If China only grew at 7%, an equivalent PE ratio would be 25x+.

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