China's Factories Power On for the First Time in Four Months
A resolution to the China-U.S. trade dispute is still in the works, but China’s manufacturing sector just returned to growth for the first time in four months, a sign that its government’s economic stimulus appears to be working. Both the private Caixin and official Chinese government purchasing managers’ indices (PMI) beat consensus by rising sharply above 50.0 in March, indicating factory expansion.
The strong upward move likely reflects the outcome of a record $83 billion China’s central bank injected into the financial system back in January. At the time, policymakers also signaled they may cut rates this year if the stimulus doesn’t bear fruit.
So far, it seems to be helping the world’s second-largest economy come off a weak end to 2018. According to research firm China Beige Book, the country’s economy showed “an unmistakable first-quarter recovery,” with company borrowing at its highest level since mid-2013.
China A-Shares Nearing a 12-Month High on Trade Progress
Chinese stocks, as measured by the Shanghai Composite Index, climbed to a nine-month high last week and are currently up some 27 percent from their low in December 2018. On Friday, A-shares flashed a bullish sign by cracking their 200-week moving average for the first time since September 2014. In a report dated April 1, Evercore ISI analyst Rich Ross wrote that “a breakout above 3,200 will generate a bigger global cross asset buy signal.”
The rally is being driven by not only the stimulus but also record foreign investment and MSCI’s acceleration of China’s A-shares weighting in its Emerging Markets Index, according to the Financial Times. The country’s non-financial sectors received an all-time high of 885.61 billion yuan ($131 billion) in foreign direct investment last year, with inflows growing 25 percent year-over-year in December alone.