After a raft of stronger activity data for March, the China NBS manufacturing PMI data moderated to 50.1 in April from 50.5 the previous month, surprising to the downside. The SME-heavy Caixin manufacturing PMI also inched lower to 50.2 in April from 50.8 in March. A disappointing start to 2Q 19 is likely to raise some concerns about the projected global growth recovery and sustainability of the equities rally.

But we see reasons why investors should not become overly pessimistic at this stage about global growth and the risk of a sharp downturn in equities:

* China PMI headline data disappointing, but sub-indices encouraging. The China NBS manufacturing PMI headline data, though lower than the March reading, is still in expansionary territory and also above the 1Q average. More importantly, the new export orders index has nudged higher for two consecutive months and, at 49.2, is the highest since August 2018. PMI production softened but remained solid. Improving export orders indicate better trade growth in the coming months. Moreover, global trade also stands to benefit if a US-China trade deal is reached in the coming weeks, as suggested by US Treasury Secretary Steven Mnuchin’s comment that the US has “made more progress than ever before” toward a trade agreement. Separately, Eurozone 1Q GDP came in at a better-than-expected 0.4% q-o-q while unemployment fell to its lowest level in more than a decade.

* Global central banks to remain accommodative. A stabilizing Chinese economy, but with downside risks for the manufacturing sector, implies that monetary policy easing, though subject to fine-tuning, is likely to continue. We think China has scope for further RRR cuts. In the US, 1Q 19 GDP beat expectations but core PCE rose just 1.3% in 1Q 19 (from 1.8% in 4Q 18), underpinning the case for the Federal Reserve to stay on hold this year. The European Central Bank remains in a wait-and-see mode as the labor market continues to recover. We expect the Fed and the ECB to keep policy rates unchanged this year.

* S&P 500 earnings growth to rebound in 2H 19. With results in from more than half of the S&P 500 by market value, the first-quarter earnings season has been better than expected so far. Leading indicators of profit growth – access to capital and business sentiment – remain favorable, suggesting an improvement going ahead. We expect 3% earnings growth in 2019 and 4% over the next 12 months.In this environment of a benign global backdrop and accommodative central bank policies, we see the best opportunities in Japanese, emerging market and Canadian stocks, given our view that US stocks are now more fairly valued after the bounce. We are also prefer offshore Chinese stocks within our Asian portfolio.