Can China ETFs Gain on Improving Manufacturing Activity Data?
Zacks Investment Research | Jul 01, 2020 01:24AM ET
The world’s second-largest economy seems to be recovering from the crippling effects of the coronavirus pandemic as it reports encouraging manufacturing activity data. China’s official Purchasing Manager’s Index (PMI) reading for June has managed to surpass expectations in spite of the odds. The PMI for June came in at 50.9, beating analysts’ expectations of 50.4 (per a Reuters’ poll). The metric compares favorably with 50.6 seen in May. Notably, PMI readings above 50 indicate expansion.
Analysts believe that rise in new export orders is supporting the encouraging data. The index measuring new export levels came in at 42.6 for June against May’s 35.3, per a CNBC article. However, the metric is still in contracting territory. Meanwhile, China’s official non-manufacturing PMI was 54.4 in June, comparing favorably with 53.6 in May.
Pandemic a Threat to Factories
As the economy is reopening, China is seeing an uptick in domestic demand. However, the country exposed to the risks of waning international demand as the coronavirus outbreak is wreaking havoc globally. Also, its factories have been continuing to decrease headcount for the second time in June since the reopening despite stronger demand, per a Reuters article. In fact, the survey’s sub-index has slipped to 49.1 from 49.4 in May.
In this regard, Huatai securities macro analyst Yang Chang said that, “the contrast between rising new orders and more job-shedding shows companies were still cautious about demand recovering in the short term,” per a Reuters article.
As the number of coronavirus cases has crossed the grim mark of 10 million globally, it is being feared that the economies may pause the reopening process and impose lockdown measures to control the spread of the virus. Such a move will definitely hurt the import and export levels of China.
Going on, the International Monetary Fund (IMF) has downgraded its outlook for the global economy and now expects a deeper global recession. It has said that the pandemic is causing wider and deeper damage to economic activity than initially predicted, leading government deficits to soar. It is predicting output to shrink 4.9% in 2020, much deeper than the 3% contraction estimated in April (according to a Reuters report).
Commenting further on the current scenario, IMF alerted that massive job cuts and business shutdowns would slow down recovery for the global economy. It now projects global growth in 2021 at 5.4%, which is far below its pre-pandemic predictions (per a Reuters' report).
ETFs in Focus
Against this backdrop, investors can keep a tab on a few China ETFs like iShares MSCI China ETF Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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