China to lead surge in Asian exports to the US in 2Q12

China’s official PMI strengthened to 53.3 in April, a clear indication that large manufacturers in China are gearing for export recovery as the US economy becomes more robust.

ISM new orders index strengthened to 58.2 in April 2012. As a 6-month leading indicator, this level for ISM manufacturing new orders should reflect about 17% YoY growth in Asia’s exports to the US in October 2012 – most likely accelerating to 10% YoY growth in 2Q12, from just 6% YoY in 1Q12, and 12-15% YoY in 3Q12.

Asia and other key emerging markets indicate clearer signs of rebounding from their soft patch. China’s official PMI gets a boost as the availability of bank credit improves. The new ISM and PMI data bolsters the conviction that 1Q12 will mark the trough in growth for most of Asia. 

Here's more from the research by Maybank Kim Eng:

ISM new orders suggest US imports from Asia should accelerate to 17%YoY growth in October 2012. ISM manufacturing new orders are an excellent 6-month leading indicator of US imports from Asia. That ISM new orders index strengthened to 58.2 in April 2012, substantially above the 50 mark that distinguishes expansion from contraction in each component of the ISM survey.

Given its properties as a 6-month leading indicator, this level for ISM manufacturing new orders should translate to about 17% YoY growth in Asia’s exports to the US in October 2012 – after likely accelerating to 10% YoY growth in 2Q12, from just 6% YoY in 1Q12, and 12-15% YoY in 3Q12.

Overall index at 54.8 is suggestive of greater robustness in the US economy in 2Q12. The ISM new orders index had hovered around 51.2 in Jul-Sep 2011 -- correctly predicting that Asia’s exports to the US would experience only a tepid improvement in 1Q12. The ISM new orders index strengthened to 53.4 in October 2011, and has stayed above 54.5 in each of the subsequent six months, with March’s reading of 54.5 being the weakest during that half year.

The April reading suggests a clear further uptick in October 2012, which is expected to be sustained through 4Q12 given that US manufacturers’ inventories retreated below 50 to 48.5 in April 2012, and customer inventories remained low at 45.5.

The overall manufacturing index of ISM, or the Institute of Supply Management, also strengthened to 58.4 in April 2012 from an average of 53 in 1Q12, and ISM’s own statistical analysis suggests that this level is consistent with just over 4% real GDP growth – while the average level in 1Q12 was consistent with 3% annualized growth, higher than the first estimate of 1Q12 real GDP growth of 2.2%.

OECD leading indicators point to cyclical rebound in EMs, and China’s PMI reinforces that. The OECD composite leading indicator has also strengthened in the past five months, reinforcing the view that Asia’s exports are likely to accelerate through the next two quarters from a cyclical trough in 1Q12. The OECD data shows that the forward-looking indicators for European economies remain dismal, but Asia and other key emerging markets are showing clearer signs of rebounding from their soft patch, while the US recovery is set to gain substantial momentum.

China’s official PMI strengthened further to 53.3 in April from 53.1 suggesting that large manufacturers in China are leading the recovery there, as the availability of bank credit improves. The new ISM and PMI data reinforce the conviction that 1Q12 will mark the trough in growth for most of Asia – and that exports and overall real GDP growth will strengthen through the rest of 2012.