China Factory Data Another Sign Economy Has Bottomed: Analyst
China's manufacturing activity, while still in contraction, rebounded in April from a four-month low, and one analyst says that's a further sign that China's slowing growth has bottomed out.
The HSBC's Flash Purchasing Manager's Index (PMI), the earliest indicator of China's monthly manufacturing activity, ticked higher to 49.1 in April from a final reading of 48.3 in March, after falling for five consecutive months. A number below 50 indicates a contraction, while a figure north of 50 shows expansion.
The change in direction of the PMI is encouraging for the economy, according to Chi Lo, CEO of HFT Investment Management.
"I do expect the HSBC PMI to continue to improve in the coming months and eventually it will climb above the bumper line of 50," Chi said on CNBC's Cash Flow. "Give it another one or two months. We'll see it, we'll be there."
Despite the "uncertainty surrounding the external environment," and the domestic housing market is still in correction phase, Lo believes China's first quarter growth rate of 8.1 percent will be the lowest level in the country's current economic cycle, adding that "momentum" is building in parts of the economy.
"When you look at the infrastructure programs in the economy, they are more than 100,000 projects going on and then there's this public housing project coming on board, liquidity is being eased, although selectively, it's going into the economy," he said.
"So you put all this together, the momentum is gathering and it's fighting against the moderating mode of the economy."
Lo anticipates at least one to two more banks' reserve requirement cuts by Chinese authorities in the first half of the year, because he says the current rate of 19 percent is "too high" for liquidity to make its way through the economic system.
Recovery in Commodity Demand
The pick-up in China's manufacturing activity is also going to bode well for commodity prices, which have seen volatility on back of concerns over a China slowdown. Lo says the PMI data suggests that China's commodity inventory correction is "basically over."
"The drag from inventory correction on the economy on demand is coming to an end and going forward we are going to see demand picked up," Lo said.
"Inventory rebuilding — that will all help increase the demand for commodities and in general in China."