Lower inventory and finished goods sub-indices pulled May' s purchasing managers' index (PMI) down to a reading of 50.8, from April' s six-month high of 51.1. This also disappointed market economists who had expected that the index - seen as a barometer of manufacturing activity - would rise to 51.3 last month.

However, by keeping above the 50-point threshold which demarcates expansion from contraction, the PMI still signalled growth, just at a slower pace. And the electronics PMI, which held steady at 50.4 in May, was an encouraging sign to observers, particularly after April' s manufacturing figures presented a surprise dip due to a cutback in production at a single semiconductor plant.

Singapore' s overall reading was not inconsistent with the mixed set of May PMI reports from across the region this past week.

Taiwan' s HSBC PMI, also released yesterday, rose marginally to 52.4 in May, from 52.3 in April. But its manufacturing sector still lacks momentum as domestic demand remains weak, HSBC economist John Zhu said. South Korea' s PMI dipped into contraction zone with a reading of 49.5, while Japan' s remained unchanged at 49.9.

More importantly, for many of Singapore' s producers, China' s HSBC PMI rose to a four-month high. The reading of 49.4 signalled less of a deterioration in business conditions, an improvement that was in line with China' s official PMI for May. The official PMI showed manufacturing growing at its fastest pace in five months, backing views that the China government' s targeted measures to boost growth are gaining momentum.

DBS economist Irvin Seah expects the improvement in China' s manufacturing to have an impact on Singapore, after a brief time lag. He thinks that the PMI will continue to ease to the 50-point mark in the next couple of months, but that manufacturing will keep growing, month on month. " We will see a more sustained improvement when we move into the second half," Mr Seah said.

Barclays economist Leong Wai Ho thinks that with better external economic conditions, the dip in May PMI warrants little concern. " The improving US investment cycle tells us to expect more orders from G-3 in the coming months and that orders from North Asia for Singapore will start to pick up as well," he said.

Both Mr Leong and Mr Seah see the lower PMI as due to a running down of inventories, as local manufacturers tweak activity levels to adjust for overly optimistic production in the first few months of the year. Mr Leong said: " This behaviour tends to precede a fresh wave of re-stocking, which we expect will lift PMIs higher in Q3. Apple' s new phone will be released then, and is expected to provide some impetus to purchasing activity."

Signs of this can also be picked up from the PMI' s imports sub-index' s continued expansion, said Janice Ong, executive director of the Singapore Institute of Purchasing & Materials Management, which polls more than 150 industrial companies to compile the monthly PMI. This indicates that " local manufacturers are anticipating a surge in order demands in coming months" , she said.

But Bank of America Merrill Lynch economist Chua Hak Bin was less bullish about manufacturers' outlook. " The much-anticipated pick-up in global demand may remain patchy and elusive, given the tepid US recovery and China' s mini fiscal austerity."

OCBC economist Selena Ling, too, believes that the Asian manufacturing and export recovery theme remains in an infancy stage for now. And the slipping sub-indices of the electronics PMI - for inventory, imports and order backlog - could be read as hints " that the thus far resilient electronics industry may find it challenging to continue to hold up growth momentum" , she said.

 

Asian stocks rose, extending a six-month high, amid optimism a report on Chinese manufacturing will add to signs that output is rebounding in the world&rsquo s second-largest economy.

Rio Tinto Group (RIO), the world&rsquo s second-biggest miner that gets 31 percent of sales from China, added 0.8 percent in Sydney. KCC Corp. jumped 7.2 percent in Seoul after unit Samsung Everland Inc. announced plans for an initial public offering. Daio Paper Corp. slumped 6.6 percent in Tokyo as the maker of packaging materials said it will raise as much as 22.4 billion yen in a share sale.

The MSCI Asia Pacific Index gained 0.1 percent to 142.57 as of 9:33 a.m. in Tokyo, before markets open in Hong Kong and China. The final reading of a China factory measure for May from HSBC Holdings Plc and Markit Economics will be released today after a government index signaled the fastest growth in five months. The Asia-Pacific equity gauge posted its largest advance in nine months in May as the yen weakened and speculation mounted that Chinese authorities will step in to boost economic growth.

&ldquo We are seeing a bottoming in terms of growth in China,&rdquo Sean Fenton, who helps manage about $1 billion in Sydney at Tribeca Investment Partners Ltd., said by phone. &ldquo The manufacturing sector is starting to bottom out and there&rsquo s some talks of mini stimulus.&rdquo

Japan&rsquo s Topix index advanced 0.7 percent and South Korea&rsquo s Kospi index lost 0.5 percent. Australia&rsquo s S& P/ASX 200 Index slipped 0.3 percent ahead of a Reserve Bank meeting at which economists forecast the central bank will keep interest rates on hold. New Zealand&rsquo s NZX 50 Index fell 0.1 percent.

China Manufacturing

A preliminary reading of HSBC&rsquo s China manufacturing purchasing managers&rsquo index came in at 49.7 for May. While that was the highest reading this year, levels below 50 still signal contraction in the sector.

China&rsquo s official Purchasing Managers&rsquo Index rose to 50.8 in May, the highest level since December and topping the median economist estimate in a Bloomberg survey, a June 1 report showed.

China&rsquo s economy is projected to grow 7.3 percent this year, which would be the weakest pace pace since 1990, according to analysts surveyed in May. Expansion slowed to 7.4 percent in the first quarter from a year earlier, compared with 7.7 percent in the previous period. The government&rsquo s target is 7.5 percent.

Futures on Hong Kong&rsquo s Hang Seng Index gained 0.4 percent and contracts on the Hang Seng China Enterprises Index of mainland shares listed in the city rose 0.7 percent. The market reopens today after a holiday.

U.S. Futures

Futures on the Standard & Poor&rsquo s 500 Index fell 0.1 percent today. The gauge yesterday extended a record high, rising 0.1 percent, as the Institute for Supply Management twice corrected the reading in its May U.S. manufacturing index.

The ISM originally said its manufacturing index fell to 53.2 from 54.9 a month earlier, before correcting it twice, once to 56 and a second time to 55.4. Fifty is the dividing line between growth and contraction. The median forecast of economists surveyed by Bloomberg called for a gain to 55.5.

The ISM corrected the index more than two hours after its initial 10 a.m. release, saying that it had applied the wrong seasonal adjustment to the data.

The S& P 500 traded at 16.3 times estimated earnings yesterday compared with 13.1 for the MSCI Asia Pacific Index (MXAP) and 15.4 on the Europe Stoxx 600 Index, according to data compiled by Bloomberg.

 

QT Vascular (QTV) gained as CIMB initiated research coverage with an " add" rating, while Addvalue Technologies lost value following a loss-making quarter.

Tiger Airways slipped amid dashed hopes of a capital injection from Singapore Airlines (SIA) and the budget carrier' s guidance that it could be looking to raise capital.

The blue chip-dominated Straits Times Index opened in positive territory and stayed there throughout the day, closing higher by 0.19 per cent or 6.39 points to head out at 3,302.24. It was the third straight session where the index changed directions.

 

Across the sectors, 37.88 per cent of payments were late in the first quarter, up from 32.84 per cent in Q4 last year.

In the construction sector, late payments made up 47.66 per cent, up from 42.01 per cent in Q4.

The Singapore Commercial Credit Bureau (SCCB), which draws its data from monitoring more than 1.5 million payment transactions, yesterday said that the deteriorating cashflow situation was a sharp contrast to the preceding quarter, which registered a three-year low in slow payments.

The SCCB' s report almost mirrored the one in April by DP SME Commercial Credit Bureau, which also reported that companies had taken a longer time to pay their bills in Q1, and that construction companies were facing the most difficulties.

The weaker showing comes amid slower economic growth here. The Ministry of Trade and Industry noted that Singapore' s economic growth slowed from 6.9 per cent in Q4 2013 to 2.3 per cent in Q1 2014 on a quarter-on-quarter (q-o-q), seasonally adjusted, annualised basis.

Just as late payments went up in number, the overall number of prompt payments q-o-q came down - from 57.73 per cent to 51.92 per cent, the SCCB said.

This is the first decline since Q2 2013, when the proportion of prompt payments dipped below the 50 per cent mark to 46.77 per cent.

Prompt payments are defined as a situation in which 90 per cent of bills are paid within 30 days payments are considered slow when more than half the bills are paid more than 30 days late.

As their cash flow deteriorates, more companies are offering partial payments. These went up marginally to 10.2 per cent from 9.43 per cent in Q4.

Partial payments have been on a steady rise, reversing a downward trend a year ago in Q1 2013, partial payments made up a mere 6.12 per cent.

Sectorally, an increase in slow payments was experienced in four out of five industries in Q1 this year - a vastly different picture from the preceding quarter, when only one in five industries recorded growth in slow payments.

DBS economist Irwin Seah said that attention should be paid to the weakness in the construction sector it is not a big part of the economy but its weakness nevertheless reflects risks down the road. " It does suggest companies may be facing liquidity tightness. There' s downsizing to their revenue inflows and cost is eroding their profit margins."

Property transactions have fallen, and with developers unable to sell their projects, they become unable to pay contractors, who in turn delay settling their bills with others in the supply chain, he said.

" We need to be watchful of the impact. It' s all connected."

He also noted that domestic debt is rising rapidly and may soon reach the historical loan-to-deposit ratio peak of 117 during the 1997/8 Asian financial crisis. Based on the latest official data, the ratio is 108, up from 100 in June last year, he said.

OCBC economist Selena Ling said that slower payments are to be expected amid a slower pipeline of construction projects awarded (-10.8 per cent q-o-q in the first quarter of 2014). In particular, private-sector construction activity has moderated along with a pullback in market sentiment transaction volumes have eased and private home sales have fallen.

She said: " In addition, there are also the supply- side constraints in terms of the foreign manpower crunch, and the government recently announced its decision to defer $2 billion of public infrastructure projects."

However, she cautioned against reading too much into one quarter of deterioration. " There is no need to over-react at this juncture, but just be mindful to watch for further material deterioration that stretches beyond one to two quarters and/or if the percentage of slow payments overtakes that of prompt payments."

 

Asian stocks rose after a gauge of China&rsquo s manufacturing expanded at the fastest pace in five months and the nation&rsquo s policymakers said they will cut the reserve requirement ratio for some banks.

Karoon Gas Australia Ltd. (KAR) surged 51 percent in Sydney after saying it will sell energy permits for the Browse Basin, off Australia&rsquo s west coast, to Origin Energy Ltd. Makita Corp. led industrial shares higher, rising 4.9 percent in Tokyo. Dai-ichi Life Insurance Co. sank 4 percent, leading losses on the regional benchmark index, after the Nikkei reported the Japanese firm is preparing to buy Protective Life Corp. for more than 500 billion yen ($4.9 billion) to expand in the U.S.

The MSCI Asia Pacific Index gained 0.3 percent to 142.16 as of 9:26 a.m. in Tokyo, on course for the highest close in six months. Trading volumes across the region will be lower than average with markets in China, Hong Kong and New Zealand closed today for holidays. Japan&rsquo s Topix index advanced 1 percent and South Korea&rsquo s Kospi index rose 0.4 percent. Australia&rsquo s S& P/ASX 200 Index was little changed.

&ldquo Policy fine tunings announcements in China continue to mount up, adding to confidence that growth will be supported around 7.5 percent this year,&rdquo said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which oversees about $133 billion. &ldquo More easing measures are likely.&rdquo

Chinese Manufacturing

China&rsquo s Purchasing Managers&rsquo Index rose to 50.8 in May, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing, the highest level since December and topping the median economist estimate in a Bloomberg survey. Readings above 50 indicate expansion in manufacturing. Authorities reduced some lenders&rsquo reserve requirement ratios in the government&rsquo s latest step to support growth in the world&rsquo s second-biggest economy.

Forecasts for a rebound in U.S. growth in the second quarter and stimulus from central banks in Japan, Europe and China, along with higher-than-estimated corporate earnings, helped send the value of global shares to a record $64 trillion last week.

China&rsquo s economy is projected to grow 7.3 percent this year, which would be the weakest pace since 1990, according to an analysts&rsquo survey in May. Expansion slowed to 7.4 percent in the first quarter from a year earlier, compared with 7.7 percent in the previous period.

In Thailand, the ruling junta deployed thousands of soldiers in central Bangkok yesterday to counter protests from groups opposed to the May 22 coup, two days after its leader General Prayuth Chan-Ocha called for unity.

Futures on the Standard & Poor&rsquo s 500 Index were little changed today after the measure last week climbed to a record 1,923.57 as utility and consumer-staple shares rallied and investors weighed data showing an uneven recovery in the U.S. economy.

The S& P 500 traded at 16.3 times estimated earnings, compared with 13 on the MSCI Asia Pacific Index (MXAP) and 15.4 on the Europe Stoxx 600 Index through last week, according to data compiled by Bloomberg.

 

WITH interest rates as low as they are and not expected to rise in the near future, the search for yields (or, to put it bluntly, the need to make money quickly) has, of late, taken on a desperate edge.

Funds who have made their money in developed markets (DMs) over the past 12 months are now looking uneasily at a US market which, even though it is at an all-time high, has not really performed convincingly over the past few weeks.

The logical next course of action, of course, would then be to revive an old theme and rediscover those markets which have been neglected for months. These would be emerging markets (EMs), which could be why the Straits Times Index has been firm for the past 6-7 weeks - some funds have been quietly shifting resources out of the West to the East.

Apart from support for the index, last week' s column discussed the state the local market finds itself in, largely running on its own steam, independent of Wall Street and relying on domestic corporate developments for inspiration.

 

[BEIJING] China' s factory activity expanded at the fastest pace in five months in May due to rising new orders, official data showed on Sunday, reinforcing views that the world' s second-largest economy is regaining momentum in the second quarter following Beijing' s targeted measures to bolster growth.

The official Purchasing Managers' Index rose to 50.8 in May from April' s 50.4, the National Bureau of Statistics said on Sunday, beating market expectations of 50.6.

" The PMI reading continued to improve in May, indicating that a trend of economic stabilization is becoming more evident," Zhang Liqun, a researcher at the Development Research Centre said in the statement accompanying the data.

As one of the first leading indicators gauging economic momentum, the improved reading could bode well for other May data, bolstering market expectations that the economy is regaining some strength as the government' s pro-growth measures started to kick in.