China’s MNI Business Sentiment Rose in December 2015
China’s Rising Business Sentiment and China-Focused Mutual Funds
China’s business sentiment rose
The MNI China Business Sentiment Indicator is a leading indicator that measures China’s current business sentiment and future expectations for the economy. A reading above 50 indicates that the business sentiment is growing while a reading under 50 suggests that business confidence is falling.
China’s MNI Business Sentiment Indicator rose 5.6% to 52.7 in December—above the neutral level of 50 and also higher than November’s reading of 49.9. A reading of 50 is considered to be neutral. However, production and new orders fell in December.
In spite of the bounceback, the slowdown in China this year was confirmed, as the 2015 average fell to 52.2 from 53.9 in 2014. This was well below the series average of 58.1. So, the MNI China Business Sentiment Indicator suggests that China is undergoing more of a bumpy ride rather than a hard landing.
Outlook for 2016
According to Philip Uglow, chief economist of MNI Indicators, Chinese economic growth may ease further in 2016. However, the continued reforms and a gradual structural shift from the manufacturing sector to the service sector may help China demonstrate sustainable economic growth in the long run.
Impact on mutual funds
A rise in credit is positive news for the overall business community, as is lower interest costs. Both factors can enable the business environment to grow.
However, weak demand and a drop in orders may lead to a decline in revenues of companies such as Tencent Holdings Limited (TCEHY), China Mobile Ltd. (CHL), and Taiwan Semiconductor Manufacturing Company Limited (TSM). China-focused mutual funds such as the Clough China Fund – Class A (CHNAX), the Guinness Atkinson China & Hong Kong Fund (ICHKX), and the RS China Fund – Class A (RSCHX) are invested in the above companies. As a result, their performance may also be negatively impacted.
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