China's Caixin Purchasing Managers' Index (PMI), a closely-watched barometer of manufacturing activity, fell to 48.2 in December, from 48.6 in November, contracting for the tenth month. A Reuters poll had a forecast for 49.0.
The official PMI data released over the weekend, meanwhile, showed the index at 49.7 in December, in line with forecasts and up a tad from November's 49.6.
Speaking to CNBC-TV18, David Mann, Asia Markets- Economist, Standard Chartered and Ben Cavender of China Market Research Group share their views on the low macro reading and the Asian market's reaction on the same.
Cavender says the market's reaction is not something to be worried about as it is policy-driven, but the PMI is likely to range lower for the upcoming months due to a manufacturing oversupply and weak demand from emerging markets (EMs).
Below is the verbatim transcript of David Mann's interview with Reema Tendulkar & Nigel D'Souza.
Nigel: What is your reading of what is going on? The Asian markets that moved to the low point of the day, the Purchasing Managers’ Index (PMI) data was much more disappointing than expected?
A: Not really. We have a similar sort of story to what the story was for the whole of last year in China where the manufacturing sector which is in much tougher structural situation has been lagging behind still under the crucial 50 expansionary level on the PMI, headline reading of 49.7 compared to non-manufacturing which is the future growth drivers of China, which is still doing relatively well and that was actually up to 54.4. So I do not think there is a major disappointment here. I think it's more evidence that we have seen a bit more of the determination coming through to deliver faster growth from government policies in China and we think we are going to see more of that through calendar year 2016.
Reema: The numbers you were referring to were the official PMI data as released by China with manufacturing at 49.7 and services inching up to 54.4 but data which is just coming out is the Caixin Final Manufacturing PMI data. So it is a private reading but there it is declined on a month-on-month basis, so 48.2 compare with 48.6 versus expectations of nearly 49 percent and that seems to have dented the sentiment in Asian markets and caused this recent bout of risk aversion because factory activity is contracted for the 10th straight month and the pace of decline has also accelerated. So when you look at the Caixin Final Manufacturing PMI, which has declined on month on month basis, then would you reassess your reading?
A: Not really. It is telling the same sort of story as the official PMI; both of them are under 50. There is 1.5 point difference between the two but they have been correlated with each other. So I do not think this is giving us anything particularly new. I think what maybe a bit more indicated, if we are seeing a bit of risk premium being factored into oil prices, if we end up with a rally in oil prices and we were expecting to see higher oil prices this year anyway as a result of demand finally exceeding supply with supply is already at maximum and cannot increase any more - that could be a bit more of a risk factor, but any disappointments that you may see from some of the short-term data out of China just reinforces our view that you would get even more policy stimulus to be able to help and let us not forget there are many different options that China has to be able to stimulate policy. They can use more expansionary fiscal policy, they can change a lot of regulations and we have already seen the policy banks being recapitalised though enabling a bit more lending. So I think this number we have seen today, doesn't change our perspectives on any of that.
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