Global Growth Expectations: 3 Key takeaways from the March PMI data

On 04/01/2020, we received a much-anticipated update of global growth expectations via the country-specific IHS Markit purchasing manager indices (“PMI”). As a refresher, PMI is a diffusion index that summarizes whether purchasing managers view future market conditions expanding, contracting, or flat. PMI centers at 50 and values above 50 indicate expansion, while values below 50 indicate contraction. Overall, we believe that the message from the growth expectations data was relatively positive, and we would highlight three major takeaways:

1. Even though market sentiment became increasingly negative during late February and early March, PMI values are not below 40, as was seen -for example- during the Great Financial Crisis.
2. In the U.S., PMI came above 50, indicating growth, and only declined marginally. The value exceeded market expectations, and we believe that is encouraging.
3. The rebound in Chinese growth expectations was significant, with the China Caixin PMI rising from 34.9 to 55.6 with strong manufacturing demand. Other countries started experiencing COVID-19 spread 4 to 6 weeks after China. Thus, we view Chinese PMI as encouraging for U.S and other countries.

Figure: Source: Innealta Capital. Time frame 02/28/2019 to 03/31/2019. Values represent the IHS Markit manufacturing seasonally adjusted purchasing managers index for each respective country. A Purchasing Manager’s Index is a survey of growth expectations from purchasing managers. The index is a diffusion index centered at 50 that summarized whether purchasing managers view market conditions as expanding, contracting or remaining the same. “Developed” and “Emerging” refer to whether MSCI classifies the country as developed or emerging, respectively.

This material is for informational purposes and is intended to be used for educational and illustrative purposes only. It is not designed to cover every aspect of the relevant markets and is not intended to be used as a general guide to investing or as a source of any specific investment recommendation. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service. This material does not constitute investment advice, nor is it a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional adviser. In preparing this material we have relied upon data supplied to us by third parties. The information has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made by Innealta Capital, LLC as to its accuracy, completeness or correctness. Innealta Capital, LLC does not guarantee that the information supplied is accurate, complete, or timely, or make any warranties with regard to the results obtained from its use. Innealta Capital, LLC has no obligations to update any such information.

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466-INN-04/02/2020