Standard Chartered’s Hunter Chan and Shuang Ding expect China’s January–February activity data to remain resilient despite weaker official PMIs. They forecast solid industrial output, a rebound in retail sales, and robust trade growth, while fixed asset investment stabilises and real estate investment keeps contracting. China’s official manufacturing PMI fell to 49 in February, down from 49.3 in January, reaching a five-month low. The decline was linked in part to disruption from the Lunar New Year holiday period.

Hard Data To Stay Resilient

Industrial production growth is expected to stay steady at 4.9% year on year in January–February, with the production PMI averaging above 50. Retail sales growth is expected to rebound to 3.4% year on year, supported by holiday spending. Fixed asset investment is expected to stop contracting as infrastructure funding is replenished at the start of the year. Trade growth is expected to stay robust due to lower tariffs and steady global demand for AI-related materials and products. Inflation is expected to rise modestly, while M2 growth remains elevated and credit momentum eases. The article was produced using an AI tool and reviewed by an editor. The recent official manufacturing PMI data for February, coming in at a soft 49.5, is creating a familiar sense of unease. This mirrors the situation we saw in early 2025 when the PMI also dropped to 49, sparking concerns that were later offset by surprisingly strong hard data. We should therefore be cautious about overreacting to sentiment indicators alone before the full activity reports are released. Looking back to the January-February period of 2025, industrial production grew a solid 4.9% even as the PMI figures looked weak. With copper prices currently pulling back slightly to around $9,500 per tonne on the latest PMI news, a similar pattern this year could present an opportunity. Traders might consider call options on industrial commodities, anticipating that underlying factory output, especially for AI-related products, will again outperform the sentiment.

Trading Implications For Volatility

We also saw retail sales rebound to 3.4% growth in early 2025, boosted by the Lunar New Year holiday. This year, holiday travel and spending data showed a 5.3% year-on-year increase, a solid figure that nonetheless fell short of some of the more optimistic forecasts, thus failing to lift market spirit. This environment could be favorable for selling cash-secured puts on major China-focused ETFs, capitalizing on high fear while betting that consumer activity is fundamentally stable. The disconnect between sentiment and reality that we observed last year, particularly with fixed asset investment stabilizing while real estate remained weak, often leads to higher implied volatility. The Cboe VIX Index has seen a slight uptick to 14.5, reflecting this uncertainty. This suggests that selling volatility through strategies like short strangles on broad indices could be profitable if, like in 2025, the actual economic data once again calms an overly nervous market in the coming weeks. Create your live VT Markets account and start trading now.

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