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China & India Lead the Way as Asia Shows Strength

Source: Taiwantrade | Updated: 05 November 2010

Two surveys of Chinese executives showed broad-based strength in the manufacturing sector of the world's second-largest economy and helped boost Asian shares outside Japan by 1.7 percent.

The official purchasing managers' index (PMI) rose to a six-month high in October of 54.7 from 53.8 in September, easily beating market forecasts of 52.9.

A figure above 50 denotes expansion; a reading below 50 indicates contraction.

The strength of the official PMI was especially striking because the index normally heads down in October, said Yu Song and Helen Qiao, economists at Goldman Sachs.

"The fact that the PMI went up despite this seasonal bias suggests real activity growth was likely to have been exceedingly strong in October," they said in a note.

The survey showed that manufacturers continued to run down stocks in October to meet rising domestic orders, which Ting Lu with Bank of America Merrill Lynch said was a reflection of strength in construction and consumption.

"These readings bode well for a recovery of output in coming months," Lu told clients.

A companion PMI produced by Markit for HSBC painted a similar picture, rising to 54.8 from 52.9 -- one of the largest month-on-month rises in the history of the survey.

Calling the official PMI one of the best leading indicators of the economy, Lu said the October report supported his forecast of 9.3 percent year-on-year growth in gross domestic product in the fourth quarter and 10.3 percent for all of 2010.

In contrast, the United States reported on October 29 that its economy grew at a tepid 2.0 percent rate in the third quarter, reinforcing expectations that the Federal Reserve would agree in the first week of November to ease monetary policy by embarking on a new program of bond purchases.

The HSBC Markit PMI for India, Asia's third-largest economy, rose to 57.2 in October from 55.1 in September.

"The manufacturing sector remains supported by strong local consumption growth, and growing employment suggests that domestic demand will remain robust," Frederic Neumann, co-head of Asian Economics Research at HSBC, said in a statement.

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