China's post-covid outstanding economic recovery may have come to an end. According to the country's Purchasing Manager Index (PMI), released on Tuesday (01.06) by the National Bureau of Statistics (NBS), the manufacturing industry slowed though it's still on a steady expansion.
China's PMI indexes show the country's production, new orders, inventory, unemployment and delivery time of raw materials. It is represented by 50 as the dividing line between expansion or contraction.
The month of May shows that China's expansion rhythm weaned. Some indicators show a contraction in the activity of small enterprises (48.8%), lower than 2.0 percentage points from last month, with more difficulty in dealing with the increase in the increase in the prices of production goods. The next few months do not seem more favourable for the industry.
The new orders index was 51.3 per cent, down 0.7 percentage points from last month and above the threshold, indicating that the expansion of manufacturing market demand has slowed down.
In developed countries, consumption focused less on services and more on goods during confinement, which benefited Chinese producers.
In the coming months, with the lifting of restrictions, expenditure will shift to services at the expense of the consumption of goods.
In May, the delivery time index of suppliers was 47.6 per cent, 1.1 percentage points lower than that of last month, which was lower than the threshold, indicating that the delivery time of raw material suppliers in the manufacturing industry was prolonged.
Also, in China, the situation is now more favourable to the non-industrial sector, where the initial recovery was slower. As a result, Chinese domestic consumption is expected to "wake up" gradually.
Overall, China's growth is expected to slow down but remain high. Thus, in the medium term, China will continue its spectacular economic development. Somewhat neglected by investors in recent months, Chinese stocks have an attractive level of valuation.
We believe there are good reasons for having exposure to the Chinese market in your portfolio. Therefore, our recommended portfolio changed by reducing 5% of the Eurozone stocks and adding 5% of Chinese stocks, giving the lower long-term growth estimation and profiting the excellent performance in the last months.
