Stock Market: Did In China A Virtual Cycle begin?

(Drivebycuriosity) - The global stock markets started the new quarter in a buoyant mood. If we believe the media then investors got inspired by good news from China´s economic front. The Caixin China manufacturing purchasing managers index rose to 50.8 in March from 49.9 in February, rebounding to expansionary territory for the first time in four months. Gains for the private gauge came on the heels of China’s official manufacturing PMI released on Sunday, which rose to a six-month high of 50.5 in March from 49.2 in February. The media interpret these improved PMIs as a sign that China is doing better than many feared and may even reaccelerate economic growth.

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It is interesting that the Chinese stock market, represented by the Shanghai Composite Index, started already a rally in February and gained 27% year-to-date. It is an open question if the stock market anticipated the alleged economic recovery or  if the stock rally inspired it. These Purchasing Managers' Indices are not hard data.  They are based on polls and they mirror the sentiment of the interviewed managers. Therefore the PMIs are sentiment indicators comparable to the Consumer Sentiment Index. It is plausible that the stock market rally lifted the sentiment of the interviewed managers which seems to fuel China`s stock market rally now. It is possible that in China a virtuous circle began, defined as chains of events that reinforce themselves through a feedback loop.