China's PMI index measuring manufacturing activity fell to an eight-month low of 48.1 in March. Economists surveyed by Bloomberg had been expecting 48.7. Anything below 50 is seen as evidence of economic contraction. The data for March was the worst in 8 months and the fifth straight economic contraction in the world’s second largest economy.
Chinese stocks actually rose after the PMI news on hopes that the data would push Chinese central banks into more aggressive stimulus programs. iShares China Large-Cap (FXI) ETF was up more than 1.5% in early trading Monday. It’s a nice bounce but the popular ETF is still down more than 8% for the year and Chinese markets officially entered bear market territory last week.
Hugh Johnson of Hugh Johnson Advisors says the Chinese will do whatever they can to keep their economy above stall-speed but a little perspective is in order. “Economic growth is not going to go below 7% in China which is still a pretty strong number,” Johnson understates in the attached video.
The real problem facing U.S. equities (^GSPC) isn’t our trading partners but complacency. “It would be nice to see a 5 - 8% correction and to see a little more pessimism out there, but the message of the markets is really clear: We’ve got farther to go in this cycle, through 2014 and through 2015 so you want to keep a very meaningful exposure to equities in a balanced account.”
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