"Would you expect any appreciable fallout from the lower Chinese PMI number on the Chinese markets and does this number influence your near/medium term outlook for that economy?"

Eoin Treacy's view Thank you for this question which others may also have an interest in. China's economy is supported by a high degree of capital investment and the size of its export sector. Consumer spending is growing quickly but still has a long way to go before it reaches a position comparable to that of Hong Kong or Taiwan. The government has been tightening policy for more than two years in an effort to unwind the 2009 stimulus, which relative to the size of the economy was the biggest in the world. Banks have taken the brunt of monetary tightening with reserve requirements at 21.5%. As I reported on my return from China last week, the export sector is feeling pressured because higher wages, lower demand, higher commodity prices and the strong Yuan all conspire to compress margins. The property market is finally beginning to show signs of slowing which was one of the central aims of the government's tightening.

The Chinese more than anyone want to engineer a soft landing for the housing market. That is a difficult a feat. They are now presented with somewhat weaker economic data. If they want a soft landing now is the time to ease monetary policy so that it acts as a cushion for the economy. That is what is happening. There is serious talk of lowering reserve requirements, interest rates and building millions of affordable homes, If need be, the Chinese can mobilize their massive reserves to support the economy.

Longer-term, it is all about governance. China needs to continue to improve the standard of living of its citizens. Migrating from the dependence of local governments on land sales would be a major step in combating graft. Growing the size of the domestic demand market is another major target. Increasing the minimum wage progressively is one step. Creating better access to healthcare, pensions and basic social security are also imperative if the high saving rate is to be mobilised. These developments are imperative because reliance on the fixed asset investment model cannot be sustained indefinitely.

The stock market has been labouring under an overhang of new supply and tighter monetary policy. Valuations have returned to historically attractive levels. The scheduled release of previously non-tradable shares is now over. Weaker economic figures such as the PMI may be the catalyst required to reinvigorate investor interest in the stock market because of the change in central government policy it is likely to engender.

The Shanghai A-Share Index found support in the region of the 2010 low last week, forming a weekly key reversal, and is following through to the upside this week. It has broken the short-term progression of lower rally highs and a clear downward dynamic, sustained for more than a day or two, would be required to check current scope for additional upside.