China's official manufacturing PMI published by China's National Bureau of Statistics (NBS) in January declined to 50.5 (consensus: 50.5, Danske Bank Markets: 50.5) from 51.0 in December last year.
The details in the NBS manufacturing PMI were overall weak but not as weak as in the Markit/HSBC manufacturing PMI. New orders in the NBS Manufacturing PMI declined to 50.9 from 52.0 and export orders also declined slightly to 49.3 from 49.8. Inventories continued to be cut relatively fast in the NBS manufacturing survey in contrast to the Markit/HSBC manufacturing PMI that showed inventories starting to increase markedly in January. Hence, the new order-inventory-balance stayed relatively healthy in the NBS survey and for that reason it does not give a strong signal of further weakness in the coming months.
Overall the development in China's two manufacturing PMIs is consistent and suggests that growth is again slowing. The current slowdown in China is in our view driven by regulatory tightening and the de-facto monetary tightening by PBoC since mid-2013. We expect China's manufacturing PMIs to continue to move lower in the coming months but unless China experiences a major credit event we do not expect the slowdown to be severe. We expect the manufacturing PMIs to move gradually lower in H1 14, bottoming out around 48 in late Q3.
For emerging markets the weak outlook for the Chinese economy in H1 14 will remain a major negative, even though the January NBS manufacturing PMI will probably not fuel the negative sentiment. The market sentiment will probably not turn markedly more positive on emerging markets until it is able to call a bottom on the Chinese economy.
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