Understanding Growth Concerns: The Westpac MNI Consumer Sentiment Indicator
Recovery in China's PMI, but Can Industrial Profits Hold Strong?
Westpac MNI Consumer Sentiment Indicator
Westpac MNI China CSI (Consumer Sentiment Indicator) is made up of the following five major sub-indicators:
Durable Buying Conditions
Current Business Conditions
Stock Investments
Real Estate Investments
Car Purchases
The Westpac MNI China CSI rose sharply by 6.1% to 118.1 in March—its highest level since September 2015—from 111.3 in February, due to greater optimism toward personal finances, the housing market, and buying conditions.
All of the above sub-indicators increased in March, led by significant gains in Current Household Finances and Durable Buying Conditions, with a larger number of respondents citing higher income as the reason for the improvement in their finances.
Meanwhile, the Car Purchase Indicator increased for the third consecutive month to the highest since May 2014. The Business Conditions Indicator rose to its highest level since December 2013, mainly due to a cut in the RRR (required reserve ratio) on February 29 by the PBOC (People’s Bank of China) and the Chinese authorities’ commitment to supporting growth at the March NPC (National People’s Congress) meeting.
Despite wider optimism on the economy, the Employment Outlook Indicator showed a more muted improvement and remained at a relatively weak level overall. But housing market sentiment improved, with sentiment reaching above the 100 neutral level for the first time since May 2014.
Outlook
According to Westpac Senior Economist Matthew Hassan, “The rebound in Chinese consumer sentiment is a welcome result, particularly given the growing role that consumer demand is now playing in driving growth in China.
Hassan added that “there is still a clear note of caution in the March survey results,” noting that “much of the improvement in sentiment still hangs on an expected turnaround in weak business conditions, which has so far failed to materialize.” Hassan further pointed out that “labor market concerns also look to be lingering and are likely to remain an inhibiting factor for demand.”
Impact on mutual funds
The above graph depicts exposure to China-focused mutual funds to the consumer discretionary sector. The Clough China Fund Class A (CHNAX) has the highest exposure to the consumer discretionary sector, at 22.5%, while other funds have exposure in the range of 14%–18%.
Keep in mind that this rise in consumer sentiment is positive for consumer discretionary companies, and this would positively impact the mutual funds with a sizable exposure to stocks from this sector as well.
Thus, the ADRs (American Depository Receipts) of consumer discretionary companies such as Ctrip.com International (CTRP), Jumei International (JMEI), Homeinns Hotel Group (HMIN), New Oriental Education (EDU), and Qunar Cayman Islands (QUNR) have been trading higher after the release of this upbeat consumer sentiment data.
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