Asian factory activity expands in May on robust global demand

By Leika Kihara

TOKYO (Reuters) -Asian factory activity expanded in May as manufacturers benefited from broadening global demand, private surveys showed on Monday, adding to hopes for sustained economic recovery in the region where China is showing early signs of a rebound.

Manufacturing activity expanded in Japan for the first time in a year and in South Korea at the fastest pace in two years, due in part to pick-ups in the automobile and semiconductor sectors, the surveys showed.

China’s private Caixin survey also showed factory activity rising at the fastest pace in about two years in May on strong production and new orders, offering hope of a broad-based recovery in Asia and other parts of the world.

The robust readings point to recovery in the manufacturing sector underpinning Asian growth and cushioning the blow from any market volatility caused by uncertainty over U.S. monetary policy.

Some analysts, however, are cautious about the outlook.

“The improvement in factory activity may be driven by hopes that China’s production will increase ahead. But the problem is that demand in the country isn’t improving much,” said Toru Nishihama, chief emerging market economist at Japan’s Dai-ichi Life Research Institute.

“It’s too early to judge whether the improvement will be sustained, given uncertainty over the strength of big markets like China and the United States,” he said.

Japan’s final au Jibun Bank manufacturing purchasing managers’ index (PMI) rose to 50.4 in May from 49.6 in April, having last climbed above the 50.0 threshold – which separates growth from contraction in activity – in May 2023.

South Korea’s PMI also rose to 51.6 in May, the highest reading since May 2022 and coming after two months below the 50 mark, showed a survey from S&P Global.

Adding to the optimism, China’s Caixin/S&P Global manufacturing PMI rose to 51.7 in May from 51.4 the previous month, the fastest pace since June 2022 and beating analysts’ forecasts of 51.5.

The reading contrasts with an official survey on Friday that surprised market participants by showing a fall in manufacturing activity, pointing to a mixed picture of the sprawling industry.

Manufacturing activity in May also expanded in Taiwan, Indonesia, Vietnam and the Philippines, private sector surveys showed.

In India, manufacturing growth slowed to a three-month low in May as a heatwave prompted some firms to reduce working hours, a survey showed on Monday.

But investors expect manufacturing to get a boost from public spending they hope will follow what exit polls point to sizable mandate and third term for Prime Minister Narendra Modi. After the market open on Monday, shares set records, the rupee gained and bonds yields dropped.

(Reporting by Leika Kihara; Editing by Christopher Cushing and Sam Holmes)