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Based on yesterday’s news that China’s manufacturing sector is growing faster than investors had been led to expect, the Shanghai market looks like it is seeing the bright side.

According to the government’s official statistics, industrial activity in China — as reflected by the purchasing managers index (PMI) — edged up to 55.2 in November. Consensus forecasts were for a much more subdued rise to 54.8 at the most, with many economists expecting the index to remain steady at 54.7.

Input prices, a gauge of wholesale inflation, surged to 73.5 from an October level of 69.9.

Although the news initially knocked Chinese stocks lower, the key Shanghai Composite index remained above the key 200-day moving average — revealing that while few global traders are comfortable with the hint of persistent inflation in China, they are still happy to see signs that Chinese factories are still pumping out products at a fast rate.

Last month, traders loved the PMI for revealing thatthe Chinese export economy remains alive and well. But this time around, too strong a number could spark fear that Beijing will have to move in before the end of the year to raise interest rates or otherwise cool the economy before it generates truly out-of-control inflation.

Since Shanghai still has technical support — for now — it could bode well for all your favorite Chinese assets, from FXI to individual stocks like BIDU and even relatively unloved names like TSL.

And ultimately, because China remains a significant bellwether for emerging markets in general, as Shanghai goes tonight, so will EEM go tomorrow.

Disclosure: No positions

Source: Chinese PMI Stronger Than Expected