Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

In a Flash, China Economy Looks Strong

Economics / China Economy May 27, 2014 - 05:00 PM GMT

By: Frank_Holmes

Economics

If you want to know where the world economy is headed, there is one number that I believe investors should focus on: the HSBC China Manufacturing Purchasing Managers’ Index (PMI).

Last week, the preliminary flash PMI for May came in at 49.7, beating Bloomberg’s consensus of 48.3.


When evaluating this number from one month to the next, it is common to focus on whether or not it has crossed above or below the 50 mark. A reading above 50 signifies expansion in manufacturing activity, while a reading below 50 signals contraction. This has certainly acted as a warning sign for how the economy will perform moving forward, but at U.S. Global Investors we look at this number a little differently.

Here’s how we see it:
When it comes to China’s PMI, it may surprise you that from November 2005 to December 2013, there have only been six instances when it crossed above 50. The infrequency of this “tell-tale move” is exactly why co-portfolio manager of our China Region Fund (USCOX), Xian Liang, and I monitor the one-month versus three-month trend, in addition to keeping track of its 50-mark movements.

Let me explain: When the current flash PMI number (49.7 for May) moves above the three-month moving average (48.6), our research shows that such a move is positive. Historically, since 2005, after the one-month crosses above the three-month average, there is a 61 to 72 percent probability that commodities and stocks will rise in the following one-month and three-month periods.

Looking back to the post-crisis period, after 2008, the probability for such movement has been lower, but still remains above 60 percent for the S&P 500 Index as well as copper.

Life is about managing expectations, and as I wrote about recently, the PMI is an excellent tool to use. These numbers allow us to anticipate the direction of manufacturing activity and help to shape our investment decisions while simultaneously managing our emotions.

A case in point for China’s numbers.

From November 2005 to December 2013, there were 18 occurrences when China’s PMI saw one-month cross above three-months. Below are a number of these instances.

Of course, investors should keep in mind that these are examples of possible ramifications – past performance does not guarantee future results.

China’s flash PMI for May represents not only the highest reading in five months, but also the largest single-month jump since August 2013. This bodes well for industrial production as we move forward, one more encouraging sign for investors to watch, and shows the potential for an exciting second half in 2014 for the energy market and commodity demand.

Government policy is a precursor to change.

Another headline for China last week was the country’s 30-year gas deal with Russia. Vladimir Putin, Russia’s president, signed a multi-billion dollar deal between Gazprom and China National Petroleum Corp. How is this significant for the global economy?

To start, this deal connects two of the world’s superpowers and allows Russia to expand its gas market to Asia. It’s noteworthy for steel and pipelining as well. Steel demand should grow dramatically along with pipeline production, and this will call for more engineering jobs in China.

Looking forward.

These significant developments out of China, whether in the form of flash PMI or a gas deal with Russia that could boost steel demand, are bullish signs to keep this country on your radar. Look for the opportunity, know what is happening in the global market, and be curious to capitalize on what you find.

Speaking of which, I recently I had the pleasure to catch up with two of U.S. Global Investors’ greatest success stories, Pacific Rubiales and Silver Wheaton, both of which we were seed investors in. This month I attended the Pacific Rubiales Investor Open House 2014 in New York City, and after meeting with top managers, I remain strongly confident that the company will continue to make giant strides in the Latin American oil sector. Also this month, we had the honor of being visited by Randy Smallwood, CEO of Silver Wheaton, whose rise from a startup mining operation only a decade ago to today’s largest precious metals streaming company in the world is certainly a compelling one.

I’m excited to share the stories of these two hugely successful companies and how U.S. Global came to be seed investors in them. Look for the two-part series on these stories soon!

Want to receive more commentaries like this one? Sign up to receive email updates from Frank Holmes and the rest of the U.S. Global Investors team, follow us on Twitter or like us on Facebook.

By Frank Holmes


CEO and Chief Investment Officer


U.S. Global Investors

U.S. Global Investors, Inc. is an investment management firm specializing in gold, natural resources, emerging markets and global infrastructure opportunities around the world. The company, headquartered in San Antonio, Texas, manages 13 no-load mutual funds in the U.S. Global Investors fund family, as well as funds for international clients.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.

Frank Holmes Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in