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China Surprises with Marginal Growth in February

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Index inching toward expansion levels

In the month of February, China’s official purchasing managers index, or PMI, inched up marginally to 49.9 from 49.8 in January 2015, according to data released by the National Bureau of Statistics, or NBS. These levels are hovering slightly below the 50 mark that separates growth from contraction. The continued weakness in the sector is led by unsteady exports and slowing investment.

At the subindex level, new orders rose to 50.4, up from 50.2, the input-price subindex rose to 43.9 from 41.9, and the production subindex fell to 51.4, down from 51.7.

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Factors affecting the index

A positive sign, the PMI rose for the first time in four months in February. A Business Standard report noted that according to the NBS, February is typically a month when the PMI tends to fall as a result of the seasonal weakness related to the Lunar New Year. “In the context of stabilizing macroeconomic policies including recent tax cuts and increased infrastructure spending, market demand rose and business confidence strengthened,” the NBS said. It added that stabilizing crude oil and raw material prices were also important factors contributing to a positive PMI.

Dry bulk shipping companies including Safe Bulkers (SB), Navios Maritime Holdings (NM), Navios Maritime Partners (NMM), and DryShips (DRYS), as well as the Guggenheim Shipping ETF (SEA), may benefit from improving PMI levels.

The SPDR S&P Metals and Mining ETF (XME) invests in industries such as steel, coal and consumable fuels, gold, precious metals and minerals, aluminum, and diversified metals and mining.

Efforts to ramp up the economy

Just before the release of the official PMI data, the central bank in China cut interest rates by 0.25 percentage points. With the risk of deflation rising, the bank is pushing forward with its efforts to boost the economy. This is the second cut in the past four months. It comes as the economy tries to revive domestic demand, even while exports and the housing sector continue to struggle.

In 2014, China’s economy grew by 7.4%, its slowest pace in nearly a quarter century. China’s legislature is expected to release its 2015 economic growth target at the annual National People’s Congress meeting starting March 19, 2015. Economists expect this target to be set at about 7%.

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