Portfolio | Too early to cheer China’s improving factory activity

Two separate gauges of Chinese manufacturing activity both show signs of improvement, easing some concerns on a worsening downturn in industrial production, but it might be too early to cheer for the Chinese economy, analysts said.

China’s official manufacturing Purchasing Managers’ Index (PMI) printed a better-than-expected 49.8 in September, slightly up from 49.7 in August, but still below the 50-mark separating contraction from expansion, according to official statistics released Thursday.

Meanwhile, the privately-produced Caixin China Manufacturing PMI was revised up to 47.2 from a preliminary reading of 47.0, also exceeding market forecasts.

The better-than-estimated data has quickly led to an improvement of risk sentiment in Asian markets, which just closed out the third quarter on Wednesday with their worst performance since the global financial crisis. With Hong Kong and mainland Chinese markets closed for holidays on Thursday, Japan’s Nikkei Index ended up 1.9 per cent, Australia’s S&P/ASX 200 closed 1.8 per cent higher, and South Korea’s Kospi index tacked on 0.8 per cent.

Analysts said the uptick in China’s official PMI and upward revision to the Caixin PMI suggest downward pressure on the industrial production may be easing, as Beijing rolled out stimulus measures to boost growth.

Among the official component indexes, output rose to 52.3 in September from 51.7, while new orders increased to 50.2 from 49.7.

"These numbers do seem to be indicating that the declining activity numbers in China may have hit a floor as the effect of monetary easing and stepped-up fiscal spending start to be felt," Angus Nicholson, an analyst for IG Group, said.