Research Blog
China’s economy: Inflection point?
For more details, please contact:
Mingchun Sun
(852) 2773 8751
mingchun.sun@hk.daiwacm.com
Kevin Lai
(852) 2848 4926
kevin.lai@hk.daiwacm.com
Fei Xue
(852) 2773 8767
fei.xue@hk.daiwacm.com
For up to date Research analysis, see our blog site here.
31 January 2012
The Daiwa China Momentum Gauge (DCMG), which tracks 20 economic indicators and counts the number of them exceeding their 12-month moving averages, dropped from 3 to 2 in the latest period (mainly covering December data – see chart and table below). This took the index to its lowest level since September 2008. But with eight of the 20 indicators strengthening in the latest period (compared with three previously), this latest DCMG provided tentative signs that the Chinese economy may be coming to an inflection point.
The indicator that dropped below its 12-month moving average in December was floor space started, providing further evidence that the property market continues to deteriorate. In December, the volume of property sales fell for the third consecutive month, while growth in property investment plunged to 12.3% YoY, the weakest in the past two years.
However, the rise in the number of indicators improving over the previous month (eight in December versus three in November) is encouraging. These include the official PMI, industrial production, electricity output, retail sales, auto sales, trade balance, bank lending and M2 growth. While some of the improvements may be explained by random factors, we judge it also reflects the initial impact of recent policy loosening, especially an increase in credit growth.
Given that most of the 20 indicators remain well below their 12-month moving averages, we do not expect a sharp rebound in the DCMG in the next 1-2 months. But with the impact of recent monetary loosening to become increasingly evident in the coming months, even though our DCMG may stay low for a couple of more months, we believe the turning point for the economy is just around the corner.
Daiwa China Momentum Gauge
Source: CEIC, Daiwa
Economic indicators for China
Source: CEIC, Daiwa
Mingchun Sun, Chief economist, Asia, ex-Japan
Kevin Lai, Senior economist, Asia, ex-Japan
Fei Xue, Economist, Asia, ex-Japan
Disclaimer:
This research report is produced by Daiwa Securities Capital Markets Co., Ltd and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Services Authority and is a member of the London Stock Exchange, Chi-X, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.
This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FSA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.
Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-and-regulatory. Regulatory disclosures of investment banking relationships are available at http://www.us.daiwacm.com/.