Sentiment Indicators - Ignore the Singapore Purchasing Manufacturers’ Index - Student's Post

For a mere sentiment measure, the PMI is widely watched by economists and stock people for some strange unknown reason. Here is the SIPMM’s self-description of the PMI, with absolutely no sense of irony:

The Singapore PMI has become a key barometer of the Singapore manufacturing economy and has been highly sought after by local and international news agencies, banks, investment and stock-broking firms.  The Singapore PMI is published monthly in the major language press media, such as The Straits Times, The Business Times, The New Paper, Chinese Daily News LianHe ZaoBao and the Malay Daily News Berita Harian.  The index is also reported regularly in the international media, as well as economic and research agencies worldwide.  In addition, the Channel News Asia and News Radio 93.8 also broadcast the monthly news release of the index.

Any index that is pleased to be reported by The New Paper must have some serious psychological issues going on. Here is my take on the PMI:

(Please switch the t-1 and t+1 on the above graph as that makes more intuitive sense.)
If you squint you can see that the explanatory power of the PMI on the STI is no more than 10 basis points as a coincident indicator, and 15 bps as a leading indicator. On the other hand, the PMI does fabulously as a lagging indicator, explaining 112 bps. By means of comparison, the explanatory power of last month’s STI return on this month is 44 bps.*
Full data is uploaded at the usual place.**
The fact that all these media outlets report this essentially useless data exemplifies the difference between “news” and “news you can use”. We are looking for tomorrow’s weather forecast, but many of the radio stations we tune in to simply talk about yesterday’s weather. ‘Nuff said.
*While the 112 vs the 44 seems strange, this finding is consistent with the human experience that it is much easier to explain the past looking backward (PMI) than it is to explain the future looking backward (STI return t-1).
**By comparison, HK’s PMI does not even keep a historical record and is released only infrequently according to Bloomberg. A sorry state of affairs for sentiment indicators in general.