May factory output continues to recover

From AB Capital's The Opening Bell: Three Moves

Event

Factory output rose 10.2% YoY in May, slower than April's 11.7% but still healthy, while capacity utilization improved to 78.8%. Growth was led by refined petroleum, electronics, and basic metals, offset by weaker chemicals, transport equipment, and food manufacturing segments.

View

In our view, the May print looks like normalization after a strong April rather than a demand slowdown. The sector is still expanding at a double-digit pace, and the move back to purchasing managers' index (PMI) expansion in May and June suggests operating conditions are stabilizing.

Catalyst

Key sensitivities are electronics demand, petroleum base effects, input costs, the peso, and global trade conditions. If artificial intelligence (AI)-linked semiconductor demand holds and local demand stays resilient, manufacturing can remain supportive of gross domestic product (GDP). If chemicals, food, and transport equipment weaken further, breadth may narrow.

Action

We think the data is mildly positive for industrial activity, logistics, and working-capital lending. Investors should favor firms with export exposure, operating scale, and pricing flexibility, while staying selective on manufacturers exposed to imported inputs, thin margins, and weaker discretionary demand.

Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.