The Hard Landing in China

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The HSBC Markit China Manufacturing PMI data for August came in at 47.6, which was revised downwards from the flash number of 47.8. PMI stands for Purchasing Managers Index and is one the best leading indicators of economic growth. A reading below 50 indicates contraction in the manufacturing sector. In fact, Jim O’Neill from Goldman Sachs Asset Management, the man who came up with the term BRICs, believes PMI numbers are among the most reliable economic indicators in the world.

The August reading is the lowest since March 2009 and reflects the tenth consecutive month-on-month deterioration in the index. Additionally, the pace of new orders fell dramatically and the employment index hit a 41 month low. Clearly, China’s exporters are facing trouble due to the problems in Europe.

The Chinese economy is stalling. The slowdown in growth is being reflected in the stock market. The CSI 300 index is now down 20% year-over-year and is one of the worst performing markets globally.

In the following video, legendary short-seller Jim Chanos discusses why he went short Chinese equities. Based on recent performance of the Chinese stock markets, he’s probably already making a decent return. Additionally, the video discusses the difficulties in being a short seller because the media and stock brokers are constantly taking a bullish view on the market. Thus, to be able to successfully short stocks you need to remain objective and unbiased in the face of continual negative reinforcement.

On that note, I’ve already alerted my paid subscribers to the Value Investing India Report on how to position their portfolios for the slowdown in China.

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