Global Manufacturing Economy Racing to All-Time Highs... What Is the Impact on the Stock Market?

May Global Manufacturing Production Index Expected to Break Record High
Manufacturing Inventory Index Also Rising, Peak Anticipated Around July-August
Concerns Over Risk Asset Preference Decline... However, Sharp Contraction Unlikely

On the afternoon of the 1st of last month, finished vehicles were waiting at the export shipment dock and storage yard of Hyundai Motor Company's Ulsan Plant. [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The manufacturing sector, which has been the central pillar of economic recovery since COVID-19, is on the verge of reaching its previous peak. There are concerns that as the economic cycle reaches its peak and the upward momentum slows, risk asset preference sentiment may weaken. However, since consumer sentiment is recovering and corporate earnings are improving, it is analyzed that the contraction will not be abrupt.

On the 2nd, Daishin Securities diagnosed that the global manufacturing economy is rapidly recovering and approaching its previous peak. The global manufacturing production index already recorded its highest level since February 2018 in February of this year. Researcher Seungbin Cho of Daishin Securities said, "Excluding the sharp drop and rebound period caused by COVID-19, if we apply the improvement speed of the global manufacturing production index since September last year to the current indicators, the March indicator appears to have already surpassed the previous peak level of December 2017," adding, "The point at which it reaches the highest level since March 2011, the highest peak since 1990, is about 2.6 months away, so the global manufacturing production index could surpass the peak in May."

Although the global manufacturing production index is approaching its peak, the favorable global manufacturing economy is likely to continue for a while longer. This is because the global manufacturing inventory index is significantly lower compared to the past. Researcher Cho said, "Assuming the global manufacturing production index-inventory index cycle improves at the pace observed since June last year, there are 4.3 months left until the previous peak and 5.7 months until the all-time high," predicting, "The peak could be reached between July and August."

The continued strength in asset prices such as stocks, commodities, and housing is also in line with this context. Researcher Seungbin Cho of Daishin Securities explained, "Following the favorable manufacturing economy, consumer sentiment has revived, accelerating the pace of global economic recovery, which has led to asset price strength," adding, "Although concerns about inflation are growing, the fact that major central banks are continuously implementing accommodative monetary policies is also a factor that increases risk asset preference sentiment."

However, it is difficult for this trend to continue indefinitely. Historically, the economy has always formed cyclical patterns. Already in February, the OECD's leading economic indicator surpassed 100 points, indicating economic expansion. Currently, the global economy has recovered significantly from its low point. As the pace of economic recovery accelerates, the timing of reaching the economic peak may also be brought forward compared to expectations.

If the global manufacturing economy begins to form a peak and gradually slow down, risk asset preference sentiment may weaken. However, consumer sentiment, which had been somewhat sluggish compared to manufacturing, has recently improved rapidly, and corporate earnings are also favorable, leading to the view that the global economy will not contract sharply. Researcher Cho forecasted, "Until global manufacturing inventories increase sharply or concerns about corporate profit margin deterioration due to rising commodity prices become serious, the upward trend in the stock market is likely to continue."

This content was produced with the assistance of AI translation services.