Chinese PMI Looking Fragile Here (CYB, FXI)

Tim Seymour:  By the way, the Chinese economic engine seems to be slowing down. Last night’s numbers do not bode well for the big PMI release at the end of the month.

Global slowdown fears are definitely back on the table.

The unofficial HSBC “flash” purchasing managers index for May sank to 51.1 — its lowest since July — from an April reading of 51.8.

Interestingly, July was also the last time commodity long interest was this low, revealing just how tightly correlated the Chinese economy and commodity fundamentals now are.

Economists attribute the decline to Beijing’s ongoing efforts to fight inflation by slowing overall economic activity.

Growth is apparently slowing in China after several moves to clamp down on local lending, including a few outright interest rate hikes.

As with many PMI indicators, any reading over 50 on the HSBC index reflects an expanding manufacturing sector, with higher numbers revealing accelerating growth.

The index has historically oscillated around an average reading of 52.3.

If this trend spills over into the official numbers out of Beijing due next week, traders may finally see that Chinese slowdown that they have been dreading for months now.

For now, export-oriented ETFs like iShares FTSE China 25 Index Fund (NYSE:FXI) are suffering their worst losses since January.

And since it now looks like Beijing’s war on inflation is paying off without forcing an outright yuan revaluation, yuan ETFs like WisdomTree Dreyfus Chinese Yuan ETF (NYS:CYB) are likely to follow their underlying currency back downward — provided of course that their models are accurate.

Written By Tim Seymour From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.

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