Senior Associate Director Head of Equities & Research
For
major Asian markets, outside China and Japan, the region’s manufacturers are
continuing
to struggle, with the headline numbers now mostly not above 50, a level that
theoretically separates contraction from expansion (with
the exception of Korea where BSI manufacturing index requires a reading above
100 for expansion).
The
main points to highlights in August’s PMIs (Purchasing Managers Index) were the
deterioration experiencedin India and Indonesia. This drop to below 50 is significant in our
view given that the two countries had been one of the most resilient economies,
having experienced expansions in their manufacturing sectors in the last six
months.
The
situation in India has worsened with headline PMI showing the sector’s first
contraction since early 2009. Recent
data displayed weak industrial production suggesting poor outlook for India,
particularly as new orders slow at a rapid pace.
On
Indonesia, PMI declined below the 50 level, pointing to a contraction in the
manufacturing sector for the first time since February (exhibit 1). This is very much in line with our recent downward
revision to our economic forecast with 2013 GDP growth of 5.8% from 5.9%
previously, before improving slightly to 5.9% in 2014 (exhibit 2), in line with
the government’s pump priming efforts leading up to the elections next year.
In
other Asian markets, ex China and Japan, we also see continued broad-based weakness
in output and new orders, despite some signs of improvements in both Taiwan and
Korea.
In
Australia, PMI also improved in August, but a headline reading of 46.4 translates
to a sluggish manufacturing sector, even following recent depreciation of the
Aussie dollar. This is because the
currency remains strong by historical standard, creating continued difficulties
for Australian producers to be competitive globally.
Going
forward, we believe that Asian manufacturers, including Indonesia, will continue
to struggle through the end of this year.
Exhibit 1. Asia Pacific Manufacturing Purchasing Managers Index (PMI)
Country
|
Jan-13
|
Feb-13
|
Mar-13
|
Apr-13
|
May-13
|
Jun-13
|
Jul-13
|
Aug-13
|
Australia
|
40.2
|
45.6
|
44.4
|
36.7
|
43.8
|
49.6
|
42.0
|
46.4
|
China
|
50.4
|
50.1
|
50.9
|
50.6
|
50.8
|
50.1
|
50.3
|
51.0
|
India
|
53.2
|
54.2
|
52.0
|
51.0
|
50.1
|
50.3
|
50.1
|
48.5
|
Indonesia
|
49.7
|
50.5
|
51.3
|
51.7
|
51.6
|
51.0
|
50.7
|
48.5
|
Japan
|
47.7
|
48.5
|
50.4
|
51.1
|
51.5
|
52.3
|
50.7
|
52.2
|
Singapore
|
50.2
|
49.4
|
50.6
|
50.3
|
51.1
|
51.7
|
51.8
|
50.5
|
South Korea*
|
70.0
|
72.0
|
76.0
|
80.0
|
81.0
|
80.0
|
73.0
|
77.0
|
Taiwan
|
51.5
|
50.2
|
51.2
|
50.7
|
47.1
|
49.5
|
48.6
|
50.0
|
Source: Bloomberg, Markit * BSI Manufacturing Index
Exhibit 2. Real GDP growth, 2008-2014F
Source: Central
Statistics Office, Bahana estimates
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