When Peter Elston wants to check the pulse of the world economy, one of the indicators he zeroes in on did not even exist a decade ago.
The head of Asia-Pacific strategy at Aberdeen Asset Management Asia in Singapore is not alone in tracking the Chinese purchasing managers' index, which is released each month by HSBC and Markit Economics. When January's preliminary estimate of 49.6 undershot economists' expectations, it stoked concern about the outlook for emerging markets and hurt assets from the Australian dollar to US stocks.
"If you look at the indicators that have moved markets in the past three to five years, I think the HSBC manufacturing PMI for China is certainly up there," Elston said. "If I am in the office, I'll be watching out for it. When the numbers are coming out, I'll certainly have looked at what the expectations are."
The focus reflects the growing might of what is now the world's second-largest economy, the top trading nation and the No1 consumer of commodities. January's preliminary report fed concern that the onetime engine of global expansion was sputtering and threatening the health of fellow developing nations, as it slid below the expansion-contraction midpoint of 50.
In the final reading for January, the HSBC/Markit PMI came in at 49.5, compared with 50.5 in December. An employment sub-index indicated the steepest cut in payroll numbers since March 2009. A separate China PMI by the National Bureau of Statistics and the China Federation of Logistics and Purchasing fell to a six-month low of 50.5, underlining that the economy lost some momentum.
"The PMIs became, over the past few years, more and more meaningful," said David Gaud, a senior money manager at Edmond de Rothschild Asset Management. "These have become the main indicators of activity and markets tend to react quite aggressively to any disappointment or good surprise."
One advantage of the PMIs is that they are among the first gauges of how the economy did for a month, as government reports on trade, industrial output and fixed-asset investment typically are released a few weeks later.
The index now compiled by Markit began in April 2004, started by a company that Markit later acquired. In 2011, HSBC and Markit began releasing flash estimates about a week before the final reading. The government-sponsored manufacturing PMI started in January 2005.
Markit Economics is part of the London-based Markit Group, which competes with Bloomberg in selling information and communications to the financial industry.
"Over the past couple of years, the market-moving nature of it has greatly increased and demand for it from clients is growing every month," said Chris Williamson, chief economist at Markit in London.
At Credit Agricole CIB in Hong Kong, economist Dariusz Kowalczyk said he was quizzed by clients "all the time" about an index he viewed as the most closely watched indicator outside the United States and Europe.
"When it comes to emerging markets, China is by far the most important for global investors because no other emerging markets have the scale that it does," he said. "It determines global concern."
China's government-sponsored PMI had stronger representation of large companies and state-owned enterprises that served the domestic market than the one prepared by Markit and HSBC, said Louis Kuijs, chief China economist at Royal Bank of Scotland.
The government-backed survey covers 3,000 companies in 31 industries on 12 topics, including production volume, new orders, export orders and inventory. The index is seasonally adjusted. HSBC and Markit compile data from replies to questionnaires sent to purchasing executives in about 420 manufacturing companies. Their preliminary, or flash, PMI is based on 85 to 90 per cent of responses.
"Whenever the flash HSBC PMI comes out, I would say 'OK, what happens to the official PMI?'" said Kuijs, a former World Bank economist. "Does it tell the same story or does it move in a more modest fashion?"
The existence of two indices could make China PMI readings difficult to interpret, said Andrew Kenningham, senior global economist at Capital Economics.
Capital Economics put "more weight on HSBC/Markit because it's more representative of the economy as a whole, while the official leans towards larger and more state-owned companies", he said.