China: Growth continued to be strong during Q1 as suggested by the PMI - Danske Bank

According to Allan von Mehren, Chief Analyst at Danske Bank, the Chinese official PMI manufacturing report showed that the economy remained strong in March. 

Key Quotes: 

“Chinese official PMI manufacturing surprised on the upside, rising to 51.8 (consensus 51.7, previous 51.6). It points to still strong growth at the end of Q1. Caixin PMI manufacturing is due to be released on Monday and we believe this is likely to paint a similar picture.”

“The bottom line is that Chinese growth continued to be strong throughout Q1. Our leading indicators point to a slowdown in 2017, as policy is tighter and investment plans are lower than in 2016. However, the strength of the housing market at the start of 2017 is likely to have postponed the slowdown.”

“We expect the People’s Bank of China (PBoC) to embark on further tightening to cool the housing market, as this is the main concern in China today, together with the rising leverage in the financial system. We believe the PBoC will continue tightening until itsees visible signs that housing is slowing. Investment plans and electricity generation are two of the indicators that suggest softer growth.”

“With continued strength in China, emerging markets assets and global risk sentiment continue to get support from this front. Some moderation in PMI in coming quarters should weaken the picture but not cause great turmoil. For emerging markets’ assets, carry and valuation have moved to the fore as investment drivers, as there are no imminent risks and the global backdrop is fairly positive. On the China front, the coming meeting between Donald Trump and Xi Jinping is key. Trump continues to highlight the significant US-China deficit as a big problem.”