Morgan Stanley: Holidays Disrupt Asian Manufacturing PMI as Recovery in Orders and Exports Broadens

Why does Morgan Stanley remain positive on underlying momentum despite the October PMI decline?

After a strong September, Asia’s manufacturing PMI fell to 51.5 in October, down 0.6 percentage points from the previous month. The output sub-index fell 1.2 percentage points, with more pronounced declines in North Asian economies, particularly South Korea and China.
Morgan Stanley believes regional holidays from late September to early October and a slow return to work afterward may have distorted the single-month data. Averaged over the two months, Asia’s PMI was 51.8, above 51.2 in 7–August and 51.6 for the year to date; new orders, output and new export orders all improved from their 7–August averages.

Excluding China, Asia’s new orders index was broadly steady at 55.3, near an eight-month high. The report said PMI strength was also reflected in industrial production growth, which was at a four-year high.
Excluding China, Asia’s new export orders index remained at 53.5, a 16-month high. India, Indonesia, Australia and Malaysia all improved, which Morgan Stanley believes shows that the export recovery is spreading from technology products to non-technology products.

Of the nine economies covered by the report, seven were in expansion territory; China and Australia were the exceptions.
China’s average PMI for 9–October was 49.7, roughly in line with 49.8 for the year to date and still below the expansion threshold of 50. Morgan Stanley believes this reflects persistently weak domestic demand in China and marks a divergence between the overall regional improvement and conditions in China.