Why China is the future

Asia Equity Update: China PMIs in Focus

Equities

Summary:  A mixed day in Asia as the quarter ends. China PMIs beat, but what does the rebound signal below the hood.


Another mixed day in Asia to end the worst quarter for global equities since 2008, ASX200 -2.02%, KOSPI +1.43%, Hang Seng +0.63%, Shanghai +0.44%, Nikkei -0.71% at the time of writing. Despite mixed trade, risk sentiment continuing to fare better than the panic deleveraging of two weeks prior. Short covering, month/quarter end rebalancing and stimulus measures are continuing to lift equities off lows. However, we still maintain it would be premature to sound the all clear. The VIX remains elevated and ultimately, we do not yet know the scale of the problem or length of lockdowns and the task of estimating the depth and duration of the hit to economic growth and earnings is subject to those unknowns. The case for re-testing lows can easily be made, particularly whilst containment measures are ongoing, and contagion is not yet under control in many countries.

A testament to the volatile quarter ending today, the day’s trade was somewhat erratic with US futures fluctuating between gains and losses, dragging Asian indices off from opening highs after China PMIs beat expectations. As has been the new norm, the trading range on the ASX 200 remains above average and Aussie stocks saw a significant 400-point reversal as US futures pared early gains, leaving the quarterly decline for the index at 24.05%. A laggard within the APAC region, both in local currency terms and USD terms.

Sentiment was buoyed this morning as China’s official manufacturing purchasing managers’ index rebounded from a record low 35.7 points in February to 52.0 points in March. At face value conditions have improved since last month as activity has resumed from lockdown. However, before reading too much into the rebound, it is important to remember that the PMI index is a diffusion index. Therefore, the rebound is a reflection of an expansion in activity relative to February, and March activity expanded vs. February, which was a lockdown month. Not indicative of a V-shaped recovery or a full resumption in economic activity. Both new export orders and raw materials inventories remained in contractionary territory. This was later corroborated by China’s National Bureau of Statistics warning that the rebound does not indicate a return to normal.

China’s manufacturing sector continues to face headwinds as the global demand shock presents a second wave of external demand collapse for the sector. European and US demand will have fallen off a cliff edge as lockdowns to contain the spread of COVID-19 have ensued. On that basis both monetary and fiscal policy will remain supportive despite the rebound in the data.

Australian weekly consumer confidence hit the lowest level on record, since the index began in 1973. Again the reading may be taken with a pinch of salt as the survey was conducted prior to the announcement of the Australian government’s wage subsidy plan yesterday. The next weeks read will be more important in gauging the hit to sentiment and read through to consumer behaviour.

Looking ahead, highlights include, German Unemployment, EZ CPI, Canadian GDP, US Consumer Confidence.

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.