Friday, December 14, 2012

China's market responds to improving PMI; institutions getting involved

HSBC China PMI shows that manufacturing continued to expand in December. The rate of expansion is still low, but consider the fact that this last reading puts the PMI index at the highest level in 14 months. This confirms earlier indications of stabilizing growth (see discussion).

Source: Markit/HSBC

The equity market moved up sharply on the news.
Bloomberg: - The Shanghai Composite Index climbed 3.5 percent to 2,134.22 at 1:20 p.m. Trading volumes were more than double the 30-day average for this time of day. Anhui Conch Cement Co. and Sany Heavy Industry Co. jumped more than 3 percent after the preliminary reading for a manufacturing index by HSBC Holdings Plc and Markit Economics increased to 50.9. Citic Securities Co. rose among brokerages, while Industrial & Commercial Bank of China Ltd. rallied the most since May 2011.

Shanghai Composite (source: Bloomberg)

As discussed earlier (see post), with the retail investor having capitulated, institutions could take advantage of this market. And that's precisely what is taking place.
Bloomberg: - “The data show the economic recovery is on a solid footing,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “There’s speculation that Ping An Insurance is increasing its positions in Chinese equities.”
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