China’s January PMI slows
China’s January 2018 PMI (Purchasing Managers’ Index) came in at 51.3. As per a poll conducted by Reuters, economists were expecting the PMI to come in at 51.5. January’s PMI was also lower than December 2017’s 51.6. A reading above 50.0 indicates expansion while a reading below this mark signals contraction. The decline in January’s PMI is mostly due to the cooling property market and tighter pollution curbs.
Factors leading to slowdown
Most market participants believe the Chinese economy will slow down in 2018 after an unexpectedly strong 2017. The government has already intensified its efforts to curb high debt as well as the runaway property market. Moreover, the government’s efforts at curbing pollution have led to a slowdown in some industries.
Manufacturing and iron ore companies
Iron ore demand closely relates to the manufacturing sector’s performance in China. A slowing pace of manufacturing doesn’t bode well for iron ore prices, which is negative for companies like Rio Tinto (RIO), BHP Billiton (BHP), Vale (VALE), and Cleveland-Cliffs (CLF).
The iShares MSCI Global Metals & Mining Producers ETF (PICK) could be an efficient way to gain exposure to the iron ore sector without having to choose individual companies. BHP Billiton and Rio Tinto are its top holdings, forming 8.8% and 7.6% of its portfolio, respectively. Vale SA (VALE) accounts for 4.9% of the fund’s holdings.