Factory activity has picked up in China despite the Covid-19 crisis sweeping the globe. Photo: AFP

A widely watched gauge of China’s manufacturing activity posted its highest reading since July on Monday, helping boost equities throughout Asia. The Shanghai Composite Index added a gain of 2.58% to this year’s rally in Monday trading.

The Caixin China General Manufacturing Purchasing Managers’ Index rose to 50.8 in March, following three months of sub-50 results. A reading above 50 in the survey of business sentiment denotes expansion.

Analysts credited recent stimulus measures undertaken by the Chinese government as well as expectations of a resolution in the trade dispute with the United States for the improved data.

But UBS chief economist Paul Donovan cautioned in an interview Monday that the sentiment data can be volatile over time and investors need to focus on hard data readings inside and outside of China.

Nonetheless, he said, a global economic meltdown is not likely, and the main factor weighing on global growth is delayed business investment due to the trade conflict.

Equities markets have already largely priced in a US-China trade deal, but many companies making long-term investment decisions are still likely waiting for the ink to dry.

While manufacturing sentiment picked up last month, analysis from BNP Paribas showed that foreign investor enthusiasm for Chinese stocks cooled. Foreign inflows accounted for US$18 billion of the gains for mainland-traded stocks in the first two months of the year, before trailing off in March.

Helped by expectations of a trade breakthrough, Chinese stocks have outperformed every other major market thus far this year.

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