The Nikkei Manufacturing Purchasing Managers’ Index (PMI), a measure of business conditions in the manufacturing sector, reached a seven-month high in April at 49.4 from 47.2 in March. The improvement is in tandem with the Asean PMI which posted a reading of 50.4 in April from 50.3 in March. Despite the improvement in the PMI reading, it is still in the contraction region for the seventh consecutive month. However, the bright side is that the manufacturing PMI reading is approaching close to the “50” mark that demarcates expansion and contraction. This suggests that bright spots are emerging, supported by the pick-up in new export orders that rose for the first time in five months from business wins in Europe, the US, Singapore and Japan. Output has also improved.

On the whole, based on the latest Nikkei manufacturing PMI data, it supports our view that the economy should improve in the 2Q of 2019. We believe the economy should grow in the region of 4.2%–4.5% in 1H2019 and gain momentum in 2H2019 by 4.8%–5.0%. Our full-year GDP projection is at 4.5% with the upside at 4.7%.

• The Nikkei Manufacturing Purchasing Managers’ Index (PMI), a measure of business conditions in the manufacturing sector, reached a seven-month high in April. The reading in April was 49.4 compared with 47.2 in March. The improvement is in tandem with the Asean PMI which posted a reading of 50.4 in April from 50.3 in March. Out of the seven countries in the region, three countries continued to show robust business condition i.e. Myanmar (53.7) taking the lead position and followed by Vietnam (52.5) and Thailand (51.0).

• Despite the improvement in the PMI reading, it is still in the contraction region for the seventh consecutive month. However, the bright side is that the manufacturing PMI reading is approaching close to the “50” mark that demarcates expansion and contraction. It suggests that some bright spots are emerging. It is supported by the pick-up in new export orders that rose for the first time in five months from business wins in Europe, the US, Singapore and Japan. Output has also improved.

• Meanwhile, stiff competition still remains from Vietnam. What is happening in Vietnam is that its manufacturers are aggressively absorbing the input cost in an effort to secure larger volumes of new orders. By leveraging competitive pricing, Vietnam has benefited from the US-China trade war by attracting companies to relocate their production from mainland China to Vietnam.

• On the whole, based on the latest Nikkei manufacturing PMI data, it supports our view that the economy should improve in the 2Q of 2019. We believe the economy should grow in the region of 4.2%–4.5% in 1H2019 and gain momentum in 2H2019 by 4.8%–5.0%. Our full-year GDP projection is at 4.5% with the upside at 4.7%.

Source: AmInvest Research - 3 May 2019