"Next week in China" fra Lundgreen's Capital

Major Data Releases:

• 28 September: China to report August industrial profits
• 30 September: China’s National Bureau of Statistics to report September Purchasing Managers’ Index (PMI)
• 30 September: RatingDog to report September manufacturing PMI
• 02 October: Hong Kong to report August retail sales statistics

The coming week will be relatively light in terms of data releases for China markets. Monday, 28 September, is a public and market holiday in Taiwan, while markets in Hong Kong and mainland China will be closed for National Day on 1 October. Mainland markets will remain closed until 7 October while Hong Kong will reopen, although Stock Connect trading with mainland exchanges will remain suspended.

For PMI, we expect the September manufacturing reading to improve from the previous month. The Emerging Industries PMI (EPMI), a leading indicator for manufacturing conditions, rose 4.5 points month-on-month to 52.3, returning to expansion after a July-August correction. The increase matched the average September gain since the series started in 2014, reflecting the usual seasonal upswing. More importantly, the composition was constructive: price indicators strengthened, export orders in next-generation information technology improved, financing constraints eased, and high-end manufacturing benefited from faster fiscal implementation and the rollout of the “Six Networks” infrastructure plan.

Price signals also remained supportive. Purchase prices improved for a second consecutive month by 1.6 points, while selling prices were flat or higher for a third, with the 3.8-point increase suggesting a more favourable backdrop for profit margins. The profit index consequently increased by five points. As such, the improvement in survey prices appears consistent with firmer monthly fundamentals.

Corporate financing conditions also improved as broad-based fiscal support picked up. The loan difficulty index for emerging industries fell 4.4 points month-on-month, reversing three consecutive monthly increases. Part of the decline may reflect quarter-end lending patterns, with a similar adjustment observed in September last year. However, faster deployment of policy-based financial instruments and funding for major projects under the “Six Networks” initiative also point to improving policy transmission towards advanced manufacturing and infrastructure investment.

Exports provided a further tailwind for high-end equipment and next-generation technologies. The latter’s export orders index jumped 10.8 points month-on-month to 52.5 in September, marking a sustained improvement since August. High-frequency data were similarly firm: South Korea’s semiconductor exports rose 270.1 per cent year-on-year in the first 10 days of September, up from 209.1 per cent in August. Together, these indicators suggest that the supply chain linking US capital expenditure with Asian manufacturing and exports remains resilient.

Expectations for stronger PMI numbers are also supported by seasonal factors and broader activity indicators. Over the past decade, September manufacturing PMI has risen month-on-month in seven instances, with an average gain of 0.28 points. This month’s EPMI suggests that fiscal support and exports are jointly lifting advanced manufacturing, while high-frequency construction data show a modest sequential recovery in both direct cement supply for infrastructure projects and shipments from concrete batching plants.

Chinese equities were mixed over the past week. As of Thursday, 24 September, the MSCI China Index was up 0.18 per cent, while the Shanghai Composite fell 0.60 per cent. The Shenzhen Component declined 2.37 per cent and the ChiNext Index lost 2.48 per cent. Small- and large-cap shares outperformed mid-cap peers, while value outperformed growth.

Looking ahead, market turnover is recovering from a dip and technology stocks are likely to stabilise and rebound. Nevertheless, the approaching holiday period may prompt some investors to hold cash, limiting near-term upside. A more sustained advance may therefore emerge only after the trading break, when improving activity indicators and policy support can be more fully reflected in risk appetite.

This piece has been co-produced with Yiyi Capital Limited in Hong Kong, a China specialist and a part of a global financial services group.

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