China PMI is Trending Downwards | Are we at the lowest point?
December 12, 2022
With city-wide lockdowns hampering its economic recovery, China’s strict COVID-19 measures have brought down its growth. This is reflected in the shrinking of China PMI. Mass testing is required in venues where cases have been reported, and those infected with COVID-19 either isolate at home or at government facilities. In cities under lockdown, businesses and schools are closed, with the measures continuing until no new infections are reported.
As people around the world begin to resume social activities – particularly the recent World Cup craze – China’s residents have begun losing their patience. As authorities look to impose lockdowns again amidst the spike in cases, residents thronged the city streets in protest of the measures. In November, iPhone manufacturer Foxconn saw workers stage a mass protest due to Covid-related concerns about their living conditions.
What is Purchasing Manager’s Index (PMI)?
The Purchasing Managers’ Index (PMI) – a key economic metric which measures the direction of the manufacturing sector – dipped to 48.0 since April 2022. This index indicates the view of purchasing managers on whether the market conditions are expanding, constant, or contracting. A PMI of 50 indicates that the market condition remains unchanged, while a score above 50 indicates that the market is expanding. A score lower than 50 indicates the market is contracting.
These shrinking numbers is a worrying sign indicative of the gloomy sentiments concerning the economic recovery of China. Even after a hopeful 2022 China Communist Party Congress, the market is still uneasy about the negative effect of its zero-Covid policy on the Chinese market.
No doubt, the general market predictions are not rosy for investors especially in declining China PMI environment. Still, manufacturing and production in China continue to see an upward trend. This is where investors can take advantage of the weak market. The adoption of electronic vehicles is still going strong. According to Fitch Ratings, electric cars will account for over 35% of the total sale of passenger vehicles next year in Mainland China, up from an estimated 27% this year.
BYD (SEHK:01211): Top EV-Selling Company in China
The top EV-selling company in China that one can follow is BYD (SEHK:01211). Despite having to offload some shares recently, BYD (SEHK:01211) Berkshire Hathaway is still one of the major shareholders of the company. One technique practised by Warren Buffett and many investors is to invest in a company with a high margin of safety. As of 9 December 2022, BYD is undervalued with a margin of safety of almost 20%. Click here to find out more about BYD Valuation Line.
CATL (SZSE:300750): Leading Chinese Battery Manufacturer
Another company where investors are following closely is CATL (SZSE:300750), a leading Chinese battery manufacturer. CATL (SZSE:300750) is the largest EV Battery manufacturer in the world, supplying batteries to electric-vehicle manufacturing companies worldwide.
There are many more electric-vehicle manufacturing companies like Nio Inc (NYSE:NIO) and Li Auto Inc (NASDAQ:LI). waiting to be discovered.
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