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Investment Research — General Market Conditions


1 March 2011
Flash Comment
China: NBS PMI falls, but not as badly as HSBC PMI


 China’s NBS manufacturing PMI fell in February, but not by as much as the HSBC
NBS manufacturing PMI
PMI released last week. While both PMIs appear to have peaked and growth in China
should start to slow from Q2, the message from the two PMIs is very different on the
February

January
pace of the slowdown. Export orders from other Asian PMIs do not suggest a sharp
Total 52.2
52.9
slowdown.
- Output
53.8
55.3
 We expect China’s GDP growth to slow from around 10½% q/q AR in Q1 to just
-New orders
54.3
54.9
below 8% q/q AR in Q1. If our forecast is right this suggests that China’s PMIs are
-Export orders
50.9
50.7
below 50 in late-Q2 11.
-Inventories 46.4
47.9
Details
Source: Reuters Ecowin
The official NBS manufacturing PMI in February fell to 52.2 (Consensus: 52.1) from

52.9 in January. On balance the NBS figure paints a more positive picture than the HSBC

manufacturing PMI (released as Flash last week), which fell from 54.5 to 51.7. While
HSBC/Markit manufacturing PMI
both new orders and export orders declined sharply in HSBC PMI, new orders and export
orders were largely unchanged in the NBS PMI.
February

January
Total 51.7
54.5
Analysis of the NBS PMI is complicated by the fact that there is considerable seasonality
in NBS PMI. Hence, in general, we prefer to look at the HSBC PMI and use our own
- Output
51.9
56.5
seasonal adjustment of NBS PMI. If we use our own seasonally-adjusted data, NBS PMI
-New orders
52.8
56.9
only fell slightly from 53.8 to 53.6 in February and export orders declined slightly from
-Export orders
49.5
52.1
54.4 to 53.7 (HSBC PMI currently 48.2) and new orders actually improved slightly to
-Inventories 47.0
47.6
57.6 (HSBC PMI currently: 52.0).
Source: Markit
Hence, while both PMIs appear to have peaked and suggest growth will slow, they

currently tell very different stories about the pace of the slowdown. Looking at the NBS


PMI, it looks mostly like moderation, while the HSBC PMI suggests a more pronounced
Both PMI’s indicates some
slowdown.
moderation in growth
In general, we should be careful to draw conclusions on the back of the February
numbers, where seasonal adjustments will always be imperfect due to the impact from the
Chinese New Year holiday – which can be anywhere from mid-January to late-February.
From foreign trade data it is evident that exports have been extraordinarily strong in
January and very weak in February, due to these seasonal distortions. That said export
orders from other Asian PMIs (Japan and South Korea) currently do not indicate a sharp
slowdown in China.
Assessment and outlook
Note: NBS with own seasonal adjustment
Both PMIs appears to have peaked, which suggest China’s GDP growth also peaked in
Source: Reuters Ecowin ,and Markit
Q1 and should start to slow from here on. We expect GDP growth in Q1 11 of about


10.5% q/q AR , slowing to around 9.5% q/q AR in Q2 and to slightly below 8% q/q AR

in Q3. If our forecast is right, the PMIs should decline to below 50 by the end of Q2 11.
As China’s PMIs have tended to lead the rest of Asia (see chart on next page) and the rest
of the world for that matter, it also suggests we could see the peak in the PMIs in the rest
of Asia in the coming months.
Senior Analyst
Flemming J. Nielsen

+45 45128535
flemm@danskebank.dk
Important disclosures and certifications are contained from page 3 of this report.

www.danskeresearch.com









Flash Comment



New orders plunge in HSBC PMI, but improve slightly in
Export orders also look much more resilient in NBS PMI

NBS PMI
compared with HSBC PMI

Source: Reuters Ecowin, Markit and Danske Markets

Source: Reuters Ecowin, Markit and Danske Markets

The two PMIs have very different messages on the outlook for New order-inventory balance remains relatively favourable
China’s import growth

Source: Reuters Ecowin, Markit and Danske Markets

Source: Reuters Ecowin, Markit and Danske Markets

Signs that PMIs have peaked in the rest of Asia, except in
Inflationary pressure appears to be easing only slightly

Japan

Source: Reuters Ecowin, Markit and Danske Markets

Source: Reuters Ecowin, Markit and Danske Markets

2 | 1 March 2011
www.danskeresearch.com









Flash Comment



Disclosure
This research report has been prepared by Danske Research, a division of Danske Bank A/S ("Danske Bank").
The author of the research report is Flemming J. Nielsen, Senior Analyst.
Analyst certification
Each research analyst responsible for the content of this research report certifies that the views expressed in the
research report accurately reflect the research analyst’s personal view about the financial instruments and issuers
covered by the research report. Each responsible research analyst further certifies that no part of the compensation
of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed
in the research report.
Regulation
Danske Bank is authorized and subject to regulation by the Danish Financial Supervisory Authority and is subject
to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske
Bank is subject to limited regulation by the Financial Services Authority (UK). Details on the extent of the
regulation by the Financial Services Authority are available from Danske Bank upon request.
The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts’
rules of ethics and the recommendations of the Danish Securities Dealers Association.
Conflicts of interest
Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high
quality research based on research objectivity and independence. These procedures are documented in the
research policies of Danske Bank. Employees within the Danske Bank Research Departments have been
instructed that any request that might impair the objectivity and independence of research shall be referred to the
Research Management and the Compliance Department. Danske Bank Research Departments are organised
independently from and do not report to other business areas within Danske Bank.
Research analysts are remunerated in part based on the over-all profitability of Danske Bank, which includes
investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate
finance or debt capital transactions.
Financial models and/or methodology used in this research report
Calculations and presentations in this research report are based on standard econometric tools and methodology
as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be
obtained from the authors upon request.
Risk warning
Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis
of relevant assumptions, are stated throughout the text.
First date of publication
Please see the front page of this research report for the first date of publication. Price-related data is calculated
using the closing price from the day before publication.

General disclaimer
This research has been prepared by Danske Markets (a division of Danske Bank A/S). It is provided for
informational purposes only. It does not constitute or form part of, and shall under no circumstances be
considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments
(i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or
options, warrants, rights or other interests with respect to any such financial instruments) ("Relevant Financial
Instruments").
The research report has been prepared independently and solely on the basis of publicly available information
which Danske Bank considers to be reliable. Whilst reasonable care has been taken to ensure that its contents are
not untrue or misleading, no representation is made as to its accuracy or completeness, and Danske Bank, its
affiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without
limitation any loss of profits, arising from reliance on this research report.
The opinions expressed herein are the opinions of the research analysts responsible for the research report and
reflect their judgment as of the date hereof. These opinions are subject to change, and Danske Bank does not
undertake to notify any recipient of this research report of any such change nor of any other changes related to the
information provided in the research report.
This research report is not intended for retail customers in the United Kingdom or the United States.
3 | 1 March 2011
www.danskeresearch.com









Flash Comment


This research report is protected by copyright and is intended solely for the designated addressee. It may not be
reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank’s prior
written consent.

Disclaimer related to distribution in the United States
This research report is distributed in the United States by Danske Markets Inc., a U.S. registered broker-dealer
and subsidiary of Danske Bank, pursuant to SEC Rule 15a-6 and related interpretations issued by the U.S.
Securities and Exchange Commission. The research report is intended for distribution in the United States solely
to "U.S. institutional investors" as defined in SEC Rule 15a-6. Danske Markets Inc. accepts responsibility for this
research report in connection with distribution in the United States solely to “U.S. institutional investors”.
Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence
of research analysts. In addition, the research analysts of Danske Bank who have prepared this research report are
not registered or qualified as research analysts with the NYSE or FINRA, but satisfy the applicable requirements
of a non-U.S. jurisdiction.
Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial
Instrument may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non-
U.S. financial instruments may entail certain risks. Financial instruments of non-U.S. issuers may not be
registered with the U.S. Securities and Exchange Commission and may not be subject to the reporting and
auditing standards of the U.S. Securities and Exchange Commission.

4 | 1 March 2011
www.danskeresearch.com


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