Frequently Asked Questions
Frequently Asked Questions
What is the Emerging Markets Index (EMI)?
The HSBC Emerging Markets Index (EMI) is a weighted composite indicator derived from national Purchasing Managers' Index™ (PMI™ ) surveys in the emerging markets of Czech Republic, Hong Kong, Israel, Mexico, Poland, Saudi Arabia, Singapore, South Africa, South Korea, Taiwan, Turkey, the United Arab Emirates and the increasingly important BRIC economies of Brazil, Russia, India and China. These surveys collectively track business conditions in over 5,800 reporting companies.
The HSBC EMI aims to provide the very earliest indication of actual economic conditions in emerging markets, and is based on hard data rather than opinion or business confidence.
What are Purchasing Managers’ Indices?
The Purchasing Managers' Index (PMI) surveys on which the EMI is based have become the most closely-watched business surveys in the world, with an unmatched reputation for accurately anticipating official data. They are ‘must-have data' for economic analysts, financial market players and all other decision-makers that need early indicators of changing economic conditions. In particular, central banks in the European Union and the United States use the data to help make interest rate decisions. The headline figures from the surveys, the "PMIs", are a weighted combination of survey variables designed to provide a single-figure snapshot of business conditions.
The PMI surveys are based on fact, not opinion, and are the first indicators of economic conditions published each month. The data are collected using identical methods in all countries so that international comparisons may be made.
Why has the EMI been developed?
The EMI has been developed to provide analysts with an accurate and timely set of data to help better understand economic conditions across emerging markets. In many cases, the advantages offered by EMI data reflect deficiencies in official economic data, which include:
Delays in publication
A significant period of time often elapses before official economic data are actually published. For GDP, the delay may be several months. The EMI data therefore provide figures several weeks in advance of quarterly national accounts data, allowing more effective business and policy decision making.
Subject to revision after first publication
Even once official data are published, they are frequently subject to revision and phrases such as "the economy grew faster than first thought" remain commonplace in press articles and analysts' briefing notes. These revisions have in the past often been significant and, although increasing efforts are being made by the statistical bodies to reduce the magnitude of revisions, the first release of many important economic data series is treated with caution by experienced analysts. EMI data are not revised.
Lack of comparability with equivalent measures used for other countries
A further problem associated with official data is that not all statistical bodies compile data using exactly the same methodologies.
The above problems result in a situation where analysts and commentators are attempting to monitor economic conditions using data that are already out of date when published, which are possibly revised substantially after first publication, are difficult to interpret against other countries' data, and which therefore are troublesome to use in creating reliable aggregate measures of performance.
It is therefore common to use supplementary data alongside the official data to obtain a more up-to-date indication of economic trends and fill the gaps in official data coverage. Monitoring such data helps not only to anticipate the forthcoming release of official data, but also highlights instances where official data may be revised after first publication. PMI data, which are used to create the EMI, have a proven track record of performing this function extremely well.
Countries included in the EMI
Manufacturing
Brazil*
China*
Czech Republic*
India*
Israel
Mexico**
Poland*
Russia*
Saudi Arabia*
Singapore
South Africa
South Korea*
Taiwan*
Turkey*
United Arab Emirates*
Services
Brazil*
China*
India*
Russia
Mexico**
*Sponsored by HSBC
**Sponsored By IMEF/HSBC
Note: Singapore, South Africa, Mexico and Israel PMI surveys are conducted by other organisations. However, as these bodies use a similar methodology to that used by Markit, they produce directly comparable data.
How accurate is the EMI as a leading indicator of economic growth?
The survey data that comprise the EMI – the PMIs – have established a highly-regarded track record of accurately anticipating changes in economic conditions in countries for which significant historical data are available. Correlation analysis shows that the EMI is just as accurate an indicator of changes in economic conditions for emerging markets. A correlation of 0.860 shows that headline EMI data have a strong, positive relationship with official emerging market GDP.
*The Q4 2005 EMI figure contains only November and December data.
How are the HSBC PMI surveys of economic activity conducted?
The national PMI surveys used to create the EMI are based on questionnaire responses from panels of senior purchasing executives or similar in manufacturing and services companies. Survey panels are carefully recruited to accurately represent the true structure of each economy. First, the current structure of the economy is identified according to official data and appropriate numbers of companies are recruited on to the panels within each industry sector (determined by 2-digit standard industry classification (SIC) codes). Within each 2-digit SIC sector the correct mix of small, medium and large-sized companies is recruited. Companies are recruited through mailing lists drawn from a variety of sources followed up by personal interviews. Currently, there are over 5,000 companies on the emerging markets panel.
Questionnaires are completed and returned in the latter half of each month, and then processed by economists at Markit Economics. Respondents are asked to state whether business conditions for a number of variables have improved, deteriorated or stayed the same compared with the previous month. Reasons for any changes are also requested from respondents.
The questionnaire covers the following economic variables:
Manufacturing
Output
New Orders
Export Orders
Backlogs of Work
Prices Charged
Raw Material Prices
Suppliers' Delivery Times
Stocks of Finished Goods
Quantity of Purchases
Stocks of Purchases
Employment
Services
Business Activity
New Business
Backlogs of Work
Prices Charged
Input Prices
Employment
Expectations for Activity
"Diffusion indexes" are calculated for each variable. These indexes vary between 0 and 100 with levels of 50.0 signalling no change on the previous month. Readings above 50.0 signal an improvement or increase on the previous month. Readings below 50.0 signal deterioration or decrease on the previous month. The greater the divergence from 50.0, the greater the rate of change signalled.
The indexes are seasonally adjusted to take into consideration expected variations for the time of year, such as factory holiday shutdowns and national holidays.
The headline Manufacturing PMI is calculated by aggregating five individual survey indexes to produce an overall index of business conditions. Weights used in the aggregation process are as follows:
New Orders x 0.30
Output x 0.25
Employment x 0.20
Suppliers' Delivery Times (inverted) x 0.15
Stocks of Purchases x 0.10
The above weights have been selected according to each component's ability to lead the economic cycle, with new orders therefore having the greatest weight and lagging indicators such as employment lower weights.
A headline PMI is not produced for the services economy.
How are the survey data seasonally adjusted?
The seasonal adjustment of PMI survey data is usually calculated using the X12 statistical programme of adjustment, as used by governmental statistical bodies in many developed countries. In the initial stages of a PMI report the seasonal adjustment is calculated by using a bespoke system specially developed and tested by Markit Economics over many years.
How are the EMI data calculated?
Individual national emerging market manufacturing and service sector surveys are weighted together according to the importance of each sector relative to total emerging market gross domestic product. This produces headline survey data for Emerging Market manufacturing and Emerging Market service sector economies.
For manufacturing, twelve indicators are produced (see above). For services, seven indicators are produced (see above). The manufacturing and service sector data are in turn weighted together to produce the overall, all-sector indices.
Six all-sector indices are produced, covering new orders, input and output prices, backlogs and employment, with the headline figure – the HSBC EMI – a composite measure of the combined (all-sector) output of emerging market manufacturing and service sectors.
The indices vary between 0 and 100 with a level of 50.0 signalling no change on the previous month.
Key survey features:
The data used in the EMI are produced very rapidly, ensuring they are the earliest economic indicators available. The EMI is published each quarter as soon as the last national PMI data are available (i.e. on the third working day of each quarter).
- The national PMIs on which the EMI are based have a proven track record of accurately anticipating comparable government data, and are available well before government-produced data are published. The value of the PMI data is highlighted by studies which show that PMIs are often more accurate at measuring GDP than initial GDP estimates by government statistical bodies.
- The data are produced using internationally comparable methodologies in thirteen of the world's key emerging countries. A weighting system is used to aggregate the national PMI data into unique indicators of overall emerging market business conditions, which can then be used to benchmark national and regional economic performance for a wide range of variables.
- All survey data used in the EMI are compiled independently of government bodies, in the majority of cases by Markit Economics – a specialist private sector economic data compiler – ensuring the surveys present an impartial reflection of actual business conditions.
- The EMI has wide sector coverage, including both manufacturing and service sector companies, which therefore provides a unique insight into parts of the economic system largely ignored by official data.
- A wide variety of variables are covered, including output, new orders, exports, employment, input costs, output prices, inventories, purchasing trends and backlogs of work.
- The PMI data series are not based on opinions, expectations or sentiment (with the sole exception of the service sector business expectations index). Senior business executives are asked to report on actual changes in business conditions compared with the situation one month ago (for example, "Has the number of new orders received by your company risen, fallen or remain unchanged on that of one month ago?"). The PMI data therefore represent the closest approximation to ‘hard data' that can be collected through such means.
- Once published, the raw data that constitute the PMI are never revised. Only minor revisions to the seasonal adjustment factors may occur. Rarely are such revisions statistically significant.
When is the EMI survey released?
The HSBC Emerging Markets Index (EMI) is released on a quarterly basis, as per the following schedule:
- January
- April
- July
- October
