In March China recorded a growth in profit, providing with more proof that the country is witnessing a cyclical recovery. The annual growth rate of profit accelerated to 11.1% y/y in March from February’s -4.7% y/y. This is likely both due to higher prices for China’s firms and higher volumes, according to Danske Bank.
Last month, China’s producer price inflation was the highest in three months, while the PMI manufacturing index rose implying that volumes quickened in March, said Danske Bank. As global metal prices and China’ producer price inflation is very much correlated, both PPI inflation and profit growth are likely to rise further in April, noted Danske Bank. Higher volumes and prices are providing relief to major firms in mining industry in China.
The Chinese economic growth is expected to further rebound in the coming few quarters. Construction is expected to mainly drive the economic growth. But infrastructure spending and export growth will also be boosted, added Danske Bank. China’s equities and EM equities are expected to be underpinned by the rebound in activity and higher growth in profit as commodity prices gain and China’s demand strengthens, according to Danske Bank.
