China manufacturing data: contracting september

Discussion in 'General Trading Discussion' started by WaveWage, Sep 23, 2015.

  1. WaveWage

    WaveWage Well-Known Member

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    As expected from investors, China's manufacturing data is published. China factory data tells that the manufacturing is still having contraction, with a 47 score in September, comparing to the 47.3 score from Caixin China Manufacturing Purchasing Managers' Index (CCMPMI). For information, above 50 means expansion comparing to the previous month, meanwhile below 50 means contraction. So for example, in August, the manufacturing activity contracted, and in September it contracted once again.


    Because of that, China currently experiences a 6.5 years low of its manufacturing activity. The markets' reaction was pretty clear: Australia S&P ASX 200 did -2.07% on close, meanwhile Shangai Composite did -2.19%. Australia is referenced because it is told that Australia is the most affected country from the China's slowdown.
    What do you think of this China slowdown that continue to slow down?
     
  2. Nox

    Nox Guest

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    I think China is slowly moving towards its long run average growth rate. Maintaining growth rates above 7% persistently is not where their long run average growth rate is. Markets are generally down, and unfortunately we are not in the pre-2007 economy where general positive market sentiment helped buoy the markets. As China moves towards a normalisation of its growth rates, I think we should expect a further decline in data.

    We also need to look at the other side of the coin, which is demand, there is a strong correlation between your supply and demand of a product, and unfortunately right now, the opportunity for the growth in demand is just not there
     
  3. WaveWage

    WaveWage Well-Known Member

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    There's also the problem of the priority of the government. We're talking about China here, not any other financial and capitalist driven country. They have thoughts and tight policies and I think the era of rather profiting of the foreign market is a bit more over. Remember, we are talking about manufacturing growth, and not about China growth as a whole. I don't know how China is growing so far, but I feel like China doesn't try to seduce investors and will still try to enforce the regulations they done after the export panic.


    However, you are right as well, the growth they have is not sustainable. But they could have still maintained it for few years, in my opinion.
     
  4. Nox

    Nox Guest

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    No I agree with you, you never truly know where their intentions lie lie at times.I was just highlighting that the relationship between demand and supply is what results in output. So we could see a combination supply side pressure and demand side pressure on the data, along with government factor that you mentioned above as well. When you look at the GDP equation, manufacturing output will definitely affect your net imports, but this may also be a leading or lagging factor in your consumption expenditure, investment expenditure and government expenditure elements as well. It can become a bit of a vicious cycle at times because they all feed into each other.
     
  5. WaveWage

    WaveWage Well-Known Member

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    If the manufacturing is slowing down, I guess it puts more the customers than the suppliers in a not so bad shape, because as soon as the supplier would be ready to go back and supply another foreign customers, they will be quickly used by companies not so worried to outsource for a while, even if the actual customers won't retry the China experience. See what happens with Boeing, despite the manufacturing problem. It really feels like absurd.


    It remembers me how the market can behave when they "dream" of assets that are both profitable and non-risky. Just for the sake of paying a too much low price, probably at the cost of quality or of environmental/transportation costs, they can hurry to China. It is expected to outsourcing seeing some success, but like this one, certainly not.
     
  6. Nox

    Nox Guest

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    Yes I do think the suppliers are better off in most cases. The suppliers who supply commodities are really badly affected though this time. The prices of most major commodities have dropped drastically because of the decline in the Chinese economy. You can see that countries that have commodity led economies, such as South Africa, Australia, Brazil and Russia, have seen some really sharp decreases in the currencies. I read somewhere today that the Brazilian currency is currently at it's 20 year lows. So these countries are not lucky enough to be in the same position as Boeing.

    The markets love the reward, but they don't like the risk. It really is a dream as you said, because you don't get the one without the other.
     

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