Data shows mainland manufacturing expanding, prompting rally in shares
Stocks in Shanghai rise the most in 3 years on further rebound in mainland manufacturing
The mainland's manufacturing sector expanded further this month from November, fuelling a surge on the Shanghai stock market, despite external weaknesses that cloud the outlook for recovery.
The HSBC Flash Purchasing Managers' Index rose to a 14-month high of 50.9 in December, up from 50.5 in November, as new orders surged, according to a report released by HSBC and Markit yesterday. A figure of 50 is the threshold dividing expansion and contraction in manufacturing.
The continued rebound in manufacturing prompted the stock market to rally the most since October 2009, with the Shanghai Composite Index closing 4.3 per cent higher at 2,150.63.
The increase in investor confidence came on the eve of the Central Economic Working Conference, expected to be held this weekend, at which leaders will decide next year's economic growth targets and policy direction.
Most analysts believes they will decide to keep the gross domestic product growth target for 2013 unchanged at 7.5 per cent, maintain pro-growth policies, and gradually introduce reforms to overhaul the economy.
The rise in the PMI confirmed the economic recovery "is gaining momentum, mainly driven by domestic demand conditions," HSBC's chief China economist, Qu Hongbin, said.
"Persisting external headwinds", however, call for Beijing to "keep an accommodative policy stance to counter-balance the external weakness, provided inflation stays benign", he said.
The strength in manufacturing was largely driven by new orders, the index for which climbed to a 19-month high of 52.7, compared with 50.8 in November.
Employment stopped contracting for the first time in 10 months, with the labour index rising to 50 from 49.1.
But other sub-indexes sent mixed signals. That for new export orders fell to 49.5, while that for production declined to 50.5 from 51.3. The final HSBC PMI figure is due on December 31.
Signs of external weakness re-emerged in November, with year-on-year growth in exports slowing unexpectedly to 2.9 per cent, from 11.6 per cent in October.
Goldman Sachs said softening production data in the PMI suggested "sequential manufacturing activity growth might have started to moderate".
Still, the bank said its forecast for real GDP to grow 7.6 per cent in the fourth quarter from a year earlier faced "more upside risks than downside risks".
Adding to the evidence of accelerating growth, mainland power consumption rose 7.6 per cent in November from a year earlier, to 413.9 billion kilowatt-hours, the National Energy Administration said. That was the fastest rise since February.
The increase in power usage came after data showed growth in industrial output accelerating to 10.1 per cent in November from a year earlier. Property investment growth last month also quickened, up 28.5 per cent from a year earlier, compared with a 15.5 per cent rise in October.
Meanwhile, Ministry of Finance data showed a deterioration in profits at state-owned enterprises slowed a bit.
Combined profits at non-financial SOEs reached 1.9 trillion yuan (HK$2.4 trillion) in the January-November period, down 7 per cent from a year earlier, compared with a decline of 8.3 per cent in the first 10 months.
SOEs in the electricity, tobacco and automobile industries recorded jumps in profit.