Why You Should Ignore The Strong China Flash PMI Report

Jonathan Kos-Read via www.flickr.com creative commonsMoments ago, we learned that the HSBC China Flash Manufacturing PMI was stronger than expected, jumping to 51.7 from 50.4 in February. Economists were looking for a reading of just 50.8.

Any reading above 50 signals expansion.

This should be welcome news.

However, Bank of America's Ting Lu is out with his instant reaction, and he pours cold water on the report.

First of all, he says that the market saw this coming.

"The rally of China-related equities yesterday was partially boosted by a whisper that the March HSBC flash PMI to be released today will be significantly above the 50.4 reading in February and the 50.8 consensus forecast," notes Lu. "Well, the flash HSBC PMI did rebound to 51.7."

Furthermore, he points to non-recurring items and the fact that the report conflicts with the recent slew of disappointing data out of the world's second largest economy.

"That said, there are significant distortions on PMI readings around the Lunar New Year (LNY) holiday, so investors should view those volatilities in PMI with caution. Other leading indicators such as daily power output suggest that March manufacturing activities remain relatively weak and street economists will likely cut their 1Q13 GDP growth forecasts."

In a note published yesterday, Lu lowered his China GDP forecasts noting a slew of weak economic data released earlier this month.