A "Big Secret" Hidden in the Anomalous PMI

In recent financial news, the secondary market has seen a significant surge in the consumption sector, capturing the attention of investors and analysts alike. Stocks like Hezhi Sesame have witnessed a staggering increase, with a rise of nearly 200%, while Gui Faxiang made headlines with an impressive record of seven consecutive trading days of growth. Yiming Food also performed well, securing six trading days of continuous increases, showcasing the unmistakable trend of investor enthusiasm in the consumer goods market.

But what is driving this ongoing growth? The answer lies in a combination of favorable consumer policies at local levels and broader economic expectations fueled by political developments. The local government initiatives aimed at boosting consumption have been rampant, indicating a proactive strategy to stimulate economic activity and support businesses impacted by recent global disruptions.

An Upward Trend in Local Consumption Policies

Research by Huachuang Securities highlights several key aspects of this consumer-promoting trend. Firstly, many cities have expanded the categories of goods supported by exchange programs where older products can be traded in for new ones. This is particularly noticeable in the electronics and home appliance sectors.

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Since November, various local governments have ramped up their support for product exchanges. For instance, places like Chun'an in Hangzhou are now accepting mobile phones, tablets, and wearable devices in their trade-in programs. Similarly, Guizhou is embracing exchanges for domestic smartphones and tablets, alongside modifications for elder-friendly home adaptations. Other provinces have followed suit, with Jiangsu embracing a wide range of electronic goods, including smartphones and cameras, while Shenzhen focuses primarily on 3C consumer electronics.

A broader view reveals that Shanghai has been the leader in this initiative, having announced support for eight types of home appliances as early as September 6. They have continually expanded their financial backing for consumers, making it attractive for households to upgrade their essential goods from kitchen appliances to home rehabilitation aides.

Additionally, financial incentives in the form of consumption vouchers have been rolled out in various regions. These vouchers are targeted towards sectors like tourism, dining, and accommodation, which have been hit hard by the pandemic. For example, Shanghai allocated 500 million yuan in municipal funds to support consumer spending in services like restaurants and cinemas. Similarly, Shenzhen invested 500 million yuan towards stimulating the 3C consumer sector, while Sichuan and Hubei issued consumption vouchers aimed at home improvement and cultural activities, respectively.

Furthermore, elite cities such as Shanghai, Beijing, Guangzhou, Tianjin, and Chongqing are organizing special consumption months, promoting a broader appeal for shopping and leisure. According to the Ministry of Commerce, the aim is to merge consumer stimulation with improving people's livelihoods and fostering new consumption patterns.

The importance of these policies correlates directly with the underlying expectation of the government emphasizing “internal circulation” strategies to boost domestic demand. As global circumstances evolve, the market anticipates substantial government support aimed at revving up domestic consumption to drive economic recovery.

The Market Shift towards 'Internal Circulation'

Scrutinizing market trends, we observe a notable shift. Investors previously focused on growth sectors like technology are now diversifying into financial and consumer stock sectors, largely due to an overarching sentiment regarding domestic policy that aims to maximize internal economic dynamics— a term widely referred to as “internal circulation.”

The political atmosphere has undoubtedly played a role in escalating these expectations. The recent election of former President Trump has raised discussions surrounding impending trade policies, particularly those involving heightened tariffs and restrictions on technology. This has led to a brisk market reaction, where sectors associated with domestic consumption are gaining momentum.

As the political landscape solidifies, there is a growing sentiment that domestic economic policies will promote internal demand and stimulate consumer engagement. This is becoming further pronounced as earnings reports reflect a transition in market leadership toward consumer-oriented sectors.

Unusual PMI Data amidst Export Surge

A closer look at the Purchasing Managers' Index (PMI) for November reveals an unusual pattern contrary to prior years. Typically, PMI data has experienced a downward trend beginning in September through the year's end, but this year’s figures paint a different picture: they have shown a consistent increase from September through November—with numbers reflecting a rise from 49.8 to 50.3.

Breaking it down, metrics for new export orders and overall new orders have driven this positive PMI outcome, signaling a recovery in demand and unveiling what appears to be an emerging “year-end export rush.” Such behavior aligns directly with consumer and export-related sectors, suggesting a robust rebound in international trade efforts.

Data from various sources reveals that since the conclusion of the US elections, there has been a significant uptick in throughput at Chinese ports, with cargo and container volumes swelling by 5.6% and 6%, respectively. The container freight index reflective of Chinese exports has surged by 6.5% as well, indicating a reinvigorated international trading stance for Chinese markets.

Additionally, shipping market indicators such as the Baltic Dry Index and commodity price indices have shown increases of 12.5% and 1.5%, respectively, signaling a robust demand for goods on a global scale. Such developments reinforce the notion that Chinese enterprises are strategizing on capitalizing on export opportunities while navigating the shifting policy landscape.

Analysts observe that this “export grab” phase often starts with trade tensions leading consumers and wholesalers to place orders aggressively, anticipating future price increases due to impending tariffs. Given current traits, it is predicted that this temporary window for export proliferation will be brief yet more potent than in the past.

In summary, the intersection of local government initiatives to promote consumption, alongside heightened expectations surrounding internal economic policies, positions the market for potential ongoing growth in the consumer and export sectors. With both local and international dynamics at play, investors are advised to keep a close watch on patterns as they continue unfolding in the rapidly evolving economic landscape.