On Sunday, the government’s official manufacturing Purchasing Managers’ Index (PMI) — compiled by the National Bureau of Statistics and China Federation of Logistics & Purchasing — indicated the fourth straight month of improvement, with a print that exceeded analysts’ expectations and held solidly above the 50 level that separates expansion from contraction.
The results were sharp contrast to a privately compiled version of the China manufacturing PMI — conducted by banking group HSBC and the London financial-services consultants Markit — which put the index at 48.3 for March, down from 49.6 in February and further into contractionary territory. See report on China PMI surveys.
Bank of America–Merrill Lynch analysts said one explanation for the twin surveys’ seemingly different conclusions is related to problems in seasonal adjustments and sample size.
It said that the HSBC’s PMI “could be significantly downwardly distorted” by the relatively small number of companies surveyed, most of which, it said, tend to be export oriented.
n the flip side, the Merrill analysts said the government-sponsored PMI “might be upwardly distorted by imperfect seasonal adjustment, despite the National Bureau of Statistics’ best efforts in this regard.”
The HSBC survey polls about 430 companies, of which about 70% tend to participate, while the government-sponsored PMI has a near perfect response rate from the 820 companies it surveys, according to Merrill.
Merrill said it viewed the government’s official PMI — which tends to track larger, domestically focused enterprises, and which has a heavy component of state-owned enterprises — as doing a better job of tracking the Chinese economy.
Analysts at Daiwa Capital Markets, meanwhile, offered another explanation, namely that the two surveys were really in broad agreement in portraying a snapshot of a slowing Chinese economy.
Daiwa said Monday that the government-sponsored PMI for the month was slightly weaker than last year’s print of 53.4, indicating growth was trending lower on a year-on-year basis.
“We believe policy loosening is still needed to reinforce the recovery,” Daiwa said in a note.
Still, Markit, the U.K.-based group which conducts the survey and compiles data for HSBC, said it is careful to make adjustments to reflect the structure of China’s economy, sifting through government data to select the industries and companies that it then targets in the survey.
“Structure is more important than size,” Markit said in an email response to a MarketWatch enquiry about the difference in the two polls.
Markit also said it weights the results to ensure “survey responses have an appropriate impact on the results according to the relative importance of the sector they operate in and the size of the company.”
It said that its survey was designed to ensure that state-owned enterprises and private-sector companies are fairly represented.
Little is known about how the rival government-sponsored survey is configured, Markit said.
“We do not know how the CFLP survey panel is structured and whether any weighting system is used. Clearly, differences in survey-panel structure and weighting will cause survey results to diverge,” Markit sai
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