Caixin China’s manufacturing Purchasing Managers’ Index
In August, the Caixin China Manufacturing Purchasing Managers’ Index (or PMI) reached a low of 47.3, up slightly from the flash reading of 47.1 but down from 47.8 in July. This indicates that the economy has been contracting quickly since March 2009.
In August 2015, China’s manufacturing output fell the fastest in six years due to a decline in total new orders and new export orders. This led to the sharpest contraction of output since November 2011.
Production requirements shrank due to weakened demand from domestic and export clients. As a result, purchasing activity fell further in August and the stock of finished goods rose for the first time in six months. This led to a reduction in workforce by manufacturing companies. The rate of workforce reduction has been accelerating since July.
Total input costs fell in August, mainly due to lower raw material costs. Similarly, output charges fell due to a decline in factory gate charges and tariffs.
Mutual funds’ exposure to the industrial sector
The four China-focused mutual funds we’ve been examining—the Clough China I Fund (CHNIX), the Fidelity China Region Fund (FHKCX), the John Hancock Greater China Opportunities Fund (JCOAX), and the Matthews China Investor Fund (MCHFX)—have more than 10% exposure to the industrials sector.
Looking at the Caixin China Manufacturing PMI reading, it’s clear that China’s manufacturing sector is shrinking quickly, which is, in turn, impacting other sectors such as employment.
MCHFX has the largest exposure to the industrial sector at 14%. MCHFX is followed by CHNIX, which has a 13% exposure to the industrial sector. Both funds will be impacted by the slowdown in manufacturing.
The Chinese market is a major revenue driver for Apple (AAPL), auto manufacturer Ford (F), and airplane manufacturer Boeing (BA). A downturn in the Chinese market would directly impact the revenues of these companies.
In the final part of our series, we’ll analyze China’s Services and Composite PMIs and their impact on the mutual funds.