China’s Manufacturing Index

China’s manufacturing PMI is a survey of Chinese manufacturing firms’ purchasing activity. It is produced by two institutions – China Federation of Logistics & Purchasing (CFLP) and Caixin – and has been monthly conducted since 1994 and monthly since 2016. This report focuses on 2017.

Source: Central Banking Whispers

Note: Index is shown in CPI-U (cost price index) as of January

China’s Manufacturing Index is an index to judge how businesses feel about their business. Average workdays is at the centre of this, which for obvious reasons should be most relevant when we talk about RMB.

What Is The China Manufacturing Index?

A broad gauge of industrial activity in China. A good proxy for growth in the country’s manufacturing sector.

The China PMI was introduced in December 2013, and has quickly become one of the most influential indicators of growth in China.

For China, the Purchasing Managers’ Index (PMI) is a highly credible indicator of growth. The index is derived from data provided by the National Bureau of Statistics (NBS) and analyzed by private sector research firms.

The China PMI is released two weeks after the NBS China Manufacturing PMI and the NBS Manufacturing PMI. They are not always released on the same day.

Why Do We Care?

The PMI shows changes in production level, sales, employment, order levels and new export orders from manufacturers.

How To Trade China’s Manufacturing Index

To trade China’s manufacturing index, I use this strategy:

(Source: TD Ameritrade, Yahoo Finance)

TRADING STRATEGY: Short PPIX + Long ETN (FXI)

My strategy is to go long the SPDR S&P China ETF (NYSEARCA:XGTI), and short the ProShares Short QQQ ETF (NASDAQ:SQQQ).

XGTI has been my choice for a while as I’ve been bullish on the Chinese economy, but more recently I’ve decided to go long QQQ because it has a higher implied volatility.

I’m long the QQQ fund (top panel) and short the short-term ETN (top panel) to hedge the XIV position (bottom panel).

XLTX has very high volatility, but that’s why I’m going long it.

I won’t argue with the fact that FXI has the lowest implied volatility, but I think the risk/reward is much better for this trade.

Conclusion

China has continued to surprise with data all the way into 2018 and into early 2019, while the New Year has been turbulent for global equities. In this article, I am looking to focus on the data, using China PMI data. For the month of January, the China manufacturing PMI reading was above 50, indicating manufacturing growth. This was in contrast to manufacturing numbers for the month of December which were at 50.3, below 50, and below expectations for a reading of 50.5.

PMI Data For China

Month(s) Percent Change January 50.4 -2.0%

For the month of January, it appears that China has continued to show strength as the PMI number printed at 50.4. This is in contrast to January’s manufacturing numbers in December, which showed the PMI number for the month of December being below 50, at 49.

source DW, B2B & industry in China, CBC