Why the emerging markets PMI paints a grim picture
The July HSBC PMIs furthered the disappointment of investors in emerging markets
The PMIs (purchasing managers indices) are monthly surveys that gauge managers’ sentiment on various items along the supply logistics chain and other related factors. The five items used to compute the PMI are production level, new orders from customers, speed of supplier deliveries, inventories, and employment level. Other items gauged include backlogs of work, quantity of purchases, stock of finished goods, and input and output prices.
The overall PMI value gives a broad sense of whether the economy is expanding or contracting. The indices are based on a scale from 0 to 100, where values above 50 imply expansion and values below 50 imply contraction.
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Among the BRIC countries, Brazil, Russia, India, and China, (BKF), only India remains above the 50 point neutral growth line. China (FXI) posted the third and lowest value below 50, while both Brazil (EWZ) and Russia (RSX) crossed the 50 point line after a long anticipation by investors. India (PIN) remains on the verge of crossing, posting a 50.1 for July.
Other key emerging markets also remain depressed. Turkey and Mexico (EWW) both crossed the 50 point line in July, while Indonesia (EIDO) remains above 50 but with a marked decreasing trend. Vietnam (VNM) remained below 50 for the third consecutive month.