Daily Brief - Picking Up Pace

TLDR: March heralded a pivotal moment for the Chinese economy, as factory activity not only rebounded but soared to a one-year peak, showcasing signs of a robust economic recovery.

The National Bureau of Statistics (NBS) reported a leap in the official Chinese manufacturing Purchasing Managers' Index to 50.8 from 49.1 in February, surpassing expectations and marking a departure from previous contractions.

This return above the pivotal 50 mark—which delineates expansion from contraction—concludes a five-month streak of diminishing activity, offering a glimmer of optimism for the world’s second-largest economy.

Adding to that, the sentiment in the service and construction sectors, as measured by China's non-manufacturing PMI, experienced an uplift to 53 in March from 51.4 in February, marking the fourth consecutive month of increase.

This encouraging trend is part of a broader positive trajectory observed in the early months of the year across various economic indicators, including industrial output and retail sales, which have outperformed expectations.

Yet, the optimism is tempered by ongoing concerns over the real estate crisis and local government debt, alongside apprehensions about China's appeal as a business and investment hub.

Market Movers: Impact on Chinese ADRs

Here is the historical 1-month response from Chinese ADRs when PMIs have jumped:

1. Yum China Holdings: 10.49%
2. Trip.com Group: 8.48%
3. Alibaba: 4.39%
4. Netease: 4.38%
5. Baidu: 1.53%
6. JD.com: 1.34%
7. Tencent Music Entertainment Group ADR: -2.20%
8. Pinduoduo: -11.54%

Scenario Spotlight: What about the Shanghai Composite?

Over the past 11 instances where the Chinese Manufacturing PMI crossed above 50, historical data indicates median positive returns in the Shanghai Composite index over the subsequent week.

Asset Spotlight: Netease valuation

In the last 15 occasions where Netease's valuation indicators were at this level, analysis from Toggle indicates a median increase in the stock's price over the next 6 months.

NetEase, Inc. is a significant player in China's tech industry, covering online gaming, music streaming, and more. Through a partnership with NetEase, Blizzard Entertainment has re-entered China's gaming market, showcasing NetEase's role in adapting international games for Chinese players.