Steel wheels keep on turning... Photo: Reuters

Shares in Hong Kong and Shanghai drifted in directionless trade as investors seemed to be chewing over the latest PMI numbers from China, which came in slightly better than expected but gave no clear indication of the economy’s trajectory in the coming months.

The official manufacturing purchasing managers’ index for May was unchanged on the previous month at 51.2, bucking analysts’ predictions of a modest slide to 51.0, a National Bureau of Statistic survey showed on Wednesday.

Managers are marginally more confident in May than when surveyed in April, with a 0.2 point gain in the business expectations index. However, they are substantially less hyped up now than around the Lunar New Year. In fact, the pare back in the import sub-index to 50 actually suggests manufacturers are taking on a more defensive strategy over inventory.

Steel offered some surprise in an otherwise lackluster report, with the sector’s PMI surging 5.7 points into the unambiguous growth zone of 54.8 (any reading above 50 indicates expansion). The new orders component of the steel industry jumped 13.6 points to 60.5, the highest in a year, helping to drive up prices of domestic ferrous metals up by about 10% since their April lows.

That rebound in steel prices was instrumental in to staving off a persistent slump in the raw materials space, and in turn, prices of manufactured goods. Although the price indices have both submerged below 50 in May, the magnitude of pullback is considerably milder than during April and March.

Meanwhile, growth in China’s services sector also accelerated to 54.5 in May, compared with the previous month’s 54.0.

The incoming data may sooth concerns of an abrupt slowdown in China’s economic momentum as authorities crack down on risky lending to prevent financial risks.

The numbers suggest that China’s economic growth is starting to moderate after a surprisingly strong start to the year, but remains stable and solid, Zhang Liqun, an analyst for the China Federation of Logistics Network said.

There are also signs that small and medium-sized enterprises are regaining strength following a string of favorable fiscal and financial policies aimed at the once weakest link of the economy. Surveys found their new orders are improving, just as momentum peters out for the biggest players.

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