Last week’s manufacturing numbers out of Beijing were only a taste of what pretty much everyone already suspected: Chinese factories are alive and well and ramping back toward growth mode. From here, watch the non-manufacturing numbers more closely.
The non-manufacturing purchasing managers’ index (PMI) measures trends in a country’s service sector, which is going to be a key component of the push to transform China from an industrial powerhouse into a modern consumer economy.
This means that these numbers are not widely reported but will provide better insight into what the Chinese government is thinking. At this point in Shanghai, you are betting on removal of tightening measures and the prospect of selective stimulus for the service sector and other small business.
In the meantime, Shanghai seems ripe for more upside triggers and this could be it. Remember, China (FXI, quote) is still trading at 12.7 times earnings, which is as low as you have seen it in a generation — give or take a few downturns that in hindsight definitely look like buying opportunities.
Jing Ulrich, who runs JPMorgan in China, warns that Chinese earnings are unlikely to be all that impressive for the remainder of this year.
But earnings flow is not why you own this market. You own this market for growth and for the ability to co-invest alongside Beijing.
Speaking of which, the National People’s Congress has confessed that GDP growth is slowing — maybe to 7.5%, which would disappoint a lot of people on Wall Street — and we could soon see them sweeten the blow with stimulus or even just taking away the curbs they already have in place.