SINGAPORE (July 4): Asia’s newest headline manufacturing PMI readings from Markit, CEIC and HSBC’s combined study may reflect low inventories for some countries of late – but this does not mean that new orders nor output growth are picking up, says HSBC Global Research.

According to co-head of Asian Economics Research Frederic Neumann, it is doubtful there will be much follow-through in Asia’s manufacturing scene, even with a rise in headline readings.

While Neumann is mainly positive about West, especially Germany with its manufacturing bounce, he does not have the same sentiments about Asia, where he says “things are mixed”.

“While the new-orders-to-inventory ratio is often a useful leading indicator for output, in this instance it is 'more noise than signal',” he explains. “True, inventories are down, but new orders aren't picking up, so output growth is barely benefitting.”

Below are Neumann’s observations based on HSBC’s research on global PMIs, new orders, new export orders and employment:

Bad: China, Japan, Malaysia
China is experiencing continued cooling in its manufacturing sector in the wake of falling new export orders. The fact that it is still shedding workers also means consumer spending growth will be constrained as a result. Japan and Malaysia are “stuck as well”, while also suffering from falling new export orders.

Better: Korea, Taiwan, Vietnam
Korea and Taiwan have picked up in manufacturing, says Neumann, which could possibly be a reflection of stronger demand in the West – but new orders in both markets are still declining, just as they are across much of Asia. New export orders have risen for Korea, Taiwan and Vietnam, while employment has firmed a bit in Taiwan and Vietnam. HSBC notes that manufacturers are adding to payrolls in Korea too, but says it is “unlikely to last” due to job losses to result from the country’s impending restructuring in the marine engineering sector.

Best: India and Indonesia
The manufacturing sectors in India and Indonesia are less exposed to swings in external demand, and are also doing better than its regional peers. “Given that growth in these two economies is not as credit-intensive as elsewhere, they may well continue to outperform,” he notes. New export orders have risen slightly in India, while employment has seen some improvement in Indonesia.