Chinese manufacturing expands ever so slightly

The good news is the Chinese economy continues to improve. The bad news, the rate of expansion is not high enough to get markets excited. October PMI printed at 50.2 compared to market expectations in that order but the read is down slightly on the September numbers. It’s been a very well-engineered slowdown in China this year among all the global problems and the political tensions – that’s how we see it anyways. Others say the slowdown highlights vulnerabilities but we think runaway inflation as experienced in 2011 was a cost too high to pay and threat to stability, hence the engineered slowdown. Recent comments from fund managers including Blackrock see Chinese demand improving along with the United States.

Any big turnaround in manufacturing data is probably still unlikely until December-January by which time the current leadership transition should be wrapped up and a solid plan for fiscal response in place for 2013. That’s not the outcome equities markets in the region wanted to hear, selling continued post the numbers release today. The market also wasn’t impressed with comments out of BHP Billiton today which said they expect the Chinese economy to grow at 6-7.5% annually on average over the next decade. This implies this year’s official government target range is at the upper end of the growth rate to be booked over the next decade.

Asian financials another story

While resource and consumption names across the Asian region have been struggling with the engineered Chinese slowdown this year, the financial space has fared relatively well. Singapore’s DBS Group – Southeast Asia’s largest lender – posted a 12% rise in its third quarter earnings today mainly due to lower bad debt charges which could resurface if things don’t improve in 2013. Still, the number was large earnings beat when compared to market consensus estimates.

DBS booked earnings of S$856m compared to S$762m in the prior corresponding quarter. Bad debt charges fell 76% which begs the question of how sustainable current provisioning levels are, particularly given government measures to try and limit further property price growth in Singapore. Still, it’s a bullish sign when a Singaporean bank goes out to market with a large fall in bad debt costs and maintains upbeat about its current asset quality profile. All eyes will be on the Chinese banks over the nex