Connect with us
Finance Digest is a leading online platform for finance and business news, providing insights on banking, finance, technology, investing,trading, insurance, fintech, and more. The platform covers a diverse range of topics, including banking, insurance, investment, wealth management, fintech, and regulatory issues. The website publishes news, press releases, opinion and advertorials on various financial organizations, products and services which are commissioned from various Companies, Organizations, PR agencies, Bloggers etc. These commissioned articles are commercial in nature. This is not to be considered as financial advice and should be considered only for information purposes. It does not reflect the views or opinion of our website and is not to be considered an endorsement or a recommendation. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third-party websites, affiliate sales networks, and to our advertising partners websites. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish advertised or sponsored articles or links, you may consider all articles or links hosted on our site as a commercial article placement. We will not be responsible for any loss you may suffer as a result of any omission or inaccuracy on the website.

INVESTING

By Graham Bishop, Investment Director at Heartwood Investment Management 

July’s readings of the Markit Purchasing Manufacturers’ Surveys (PMIs) offered no real standout surprises. However, they seem to support our view that global growth is softening at the margin in the second half of this year, and that we are seeing less synchronised performance between economies. In fact, the improvement in global manufacturing over the last year may now have reached its cyclical peak.

Our analysis shows that fewer countries are making a positive contribution to global manufacturing growth, a trend that has been building since March. Only 30% of individual countries saw accelerating growth rates in July compared with nearly 80% of countries at the end of last year (based on the index change over the last three months).

Percentage of countries with faster rates of manufacturing activity (3-month change)

Source: Markit Purchasing Managers’ Surveys, Bloomberg

Source: Markit Purchasing Managers’ Surveys, Bloomberg

There also appears to be more dispersion at the individual country level. Manufacturing surveys in the last three months show that developed economies are now outperforming emerging economies – a situation that contrasts with earlier in the year when we saw a higher degree of synchronisation in global growth. Emerging economies, especially the commodity exporters and to a lesser extent China, are contributing to this divergence. In the case of China, there remains a discrepancy between the official and ‘unofficial’ manufacturing surveys, which we monitor closely. Even among developed economies, though, we are seeing wider levels of dispersion at the country level. Much of the developed world’s current outperformance is attributable to the Eurozone members, while the UK is one of the weakest countries and the US is plateauing.

Manufacturing surveys are of course a proxy and do not tell the whole story about general economic conditions. However, they are an important barometer of overall business sentiment and, as we saw in 2015, the health of manufacturing can have important ramifications for the broader economy.

We do not yet consider this moderation in activity to be overly concerning. Moreover, it is only to be expected that some of the froth has evaporated from the elevated readings seen earlier this year. For now, we believe that these slower rates of expansion signal the transition from a cycle of manufacturing improvement and recovery to one of stabilisation.

There is, though, one important caveat. The marginal softening in global manufacturing, and perhaps broader economic momentum, is occurring at a time when central banks are considering removing monetary policy accommodation. While we believe the current environment remains supportive to risk assets and corporate fundamentals, we are starting to take a more cautious view further out as policymakers continue to normalise monetary conditions. In consequence, we believe that it is prudent to begin reducing risk in portfolios incrementally.

Continue Reading

Recent Posts