China Manufacturing Boosts Asian Markets

Chinese manufacturing posted its best improvement in over a decade on Wednesday, the 1st of March, according to data compiled by China's National Bureau of Statistics (NBS). Overnight, the NBS reported that Manufacturing PMI jumped to 52.6 in January, the highest reading since early 2012. The Non-Manufacturing PMI segment also rose to 56.3, with both measures beating economists' expectations.

Hong Kong stocks advanced and major indices in the US reversed Tuesday's losses following the data as it affirmed that the world's second-largest economy is seeing a strong rebound after lifting covid restrictions. Commodities and currencies climbed, with the Australian dollar (AUD/USD) recovering from a loss earlier in the session. The Australian dollar was seen as being buoyed by expectations that Chinese demand would have a solid recovery.

Lifting the Last Restriction Made a Difference

Both the Nikkei and the Shanghai Composite indices rose but under 1%. Hong Kong experienced the best performance, with the Hong Kong 50 (HSI) popping up 3.4% as the city's Chief Executive announced the lifting of requirements to wear masks indoors, the last covid restriction still in effect. With China's post-pandemic reopening completed, investors are looking at regional trends, balancing economic growth and rising tensions between US and China.

The rebound broke a general downtrend for the last several weeks as investors reevaluated the chances that the Fed will keep hiking, pushing a broad sell-off in risk assets. The Hang Seng's almost 4% rebound on Wednesday reversed an 11% decline mainland Chinese stocks had experienced through February.

Oil prices advanced for a second consecutive following China's data on renewed hopes of improving demand. Oil (CL) rose 49 cents to $77.54 per barrel, and Brent Oil (EB) 45 cents to $83.90. The move up was seen losing steam by the release of the weekly API report, as it showed rising stockpiles by the American Petroleum Industry. OPEC production output was also seen rising by 150,000 barrels a day in February. (Source: Reuters)

China's Growth Upgraded by Moody's

Following the PMI data, economists say that China might be seeing a rapid rebound after ending the zero-covid policy in December of 2022. Accordingly, the non-manufacturing PMI segment, which includes construction and services, had the best performance in two years. Meanwhile, Caixin's private measure of manufacturing PMI showed a substantial jump in factory activity, posting the first expansion in seven months at 51.6 in February.

Moody's, a credit ratings company in the financial services sector, recently upgraded its growth forecast for the world's second-largest economy, China, expecting growth of 5% for both this year and the next. This might have reflected possible growth as it had previously forecasted a 4% growth rate for both years. Moreover, the company said the change was due to a faster rebound than expected following the lifting of covid restrictions. 

The figures are seen as adding to other signs that the economy is rebounding and giving government officials and policymakers a good position ahead of the National People's Congress (NPC). It is scheduled for next week, and the NPC is expected to announce a new growth target for the country.

Looking out for Signals at the NPC Meeting

The jump in factory data may be pointing to the recovery becoming more balanced since the sector had been seen as lagging recently due to the slump in exports and lower activity from the Lunar New Year. Nonetheless, economists expect exports to contract this year due to weaker global demand. 

As China returns to normalcy, analysts will be looking at potential stimulus signals that could come out of the National People's Congress. Some expect consumption in China to be supported later in the year following possible announcements from the NPC next week and demand to improve compared to the prior year. Others, on the other hand, warn that the stimulus might fall short compared to expectations since the PBOC would be mindful of inflation risks as the economy is getting back on track. 

Conclusion

Commodities, Asian currencies, and Asian stocks jumped on Wednesday after China's government measure of manufacturing activity had the best performance in over ten years. The data was seen supporting the expectation that the world's second-largest economy was experiencing a strong rebound following the lifting covid restrictions.