Japan’s NIRP and China PMI produce distinct losers and winners

HONG KONG - Still groggy from the BOJ’s negative interest rate shock last Friday, the region is sobering up to some rather subdued manufacturing news, says French investment bank, Natixis.

“The January China official manufacturing PMI, which has more State-owned firms in the sample than the Caixin one, contracted by more than expected. The rest of emerging Asia, from Korea to Taiwan, saw further weakness in the manufacturing sector,” Natixis says.

“While the BOJ’s negative interest rate policy (NIRP) suggests that there will be a hunt for higher-yielding assets domestically and globally, a weaker JPY adds further pressure on an already beleaguered manufacturing sector in EM Asia, especially in China, Korea and Taiwan.

“Countries that are less trade correlated with China and Japan while offering attractive growth and interest rate differentials will excel.

“An improving economic cycle, albeit marginally, also helps. In this context, ASEAN ex Singapore and India stand out to benefit. But Korea and Taiwan are squeezed by both a weaker JPY and a slowing China.” https://www.research.natixis.com (ATI).