On Tuesday evening well after the U.S. markets were closed, the investment community received some very impressive news out of China. The HSBC Flash China Manufacturing PMI number came in at 49.1 for October versus the 47.9 number that was recorded in September which resulted into a month-over-month increase of roughly 2.5%.
According to comments by Hongbin Qu, HSBC's chief economist for china, "October's flash PMI reading continues to recover for the second month, thanks in part to a gradual improvement in the new orders index which picked up to a six-month high (albeit marginally below 50). This is helped by the filtering-through of the earlier easing measures. However, external challenges are still abound and the pressures on job market are lingering. This calls for a continuation of policy easing in the coming months to secure a firmer growth recovery." In my opinion we could begin to see such PMI numbers hit the 50.2 - 50.8 range for November and the 50.5 - 51.2 range for December if growth continues and a firmer recovery is confirmed.
When it comes to the Flash PMI numbers for October there are two things investors need understand in terms of the milestones that were achieved. Both the Flash China Manufacturing PMI (49.1) and the Flash China Manufacturing Output Index (48.3) each hit a three month high. The increases in both the Manufacturing PMI and the Manufacturing Output Index signify that such things as inflation and economic growth are now under control. With that said, I wanted to measure the recent performance of the following Chinese-based ETFs versus the SPDR S&P 500 ETF (SPY) and the SPDR Dow Jones Industrial Average (DIA) since September 13th, which was the day the US initiated its third round of quantitative easing.
-The SPDR S&P China ETF (GXC) has demonstrated a return of 7.22% since September 13th whereas SPY has fallen 3.53% and DIA has fallen 3.43% since QE3's implementation. The return ratio of GXC vs. SPY equates to almost 3.04 to 1 and the return ratio of GXC vs. DIA equates to almost 3.10 to 1
-The iShares FTSE China 25 Index Fund (FXI) has demonstrated a return of 8.44% since September 13th whereas SPY has fallen 3.53% and DIA has fallen 3.43% since QE3's implementation. The return ratio of FXI vs. SPY equates to almost 3.39 to 1 and the return ratio of GXC vs. DIA equates to almost 3.46 to 1.
-The iShares MCSI Hong Kong Index Fund (EWH) has demonstrated a return of 5.07% since September 13th when the U.S. implemented a third round of Quantitative Easing, whereas the SPY has fallen 3.53% and DIA has fallen 3.43% since QE3's implementation. The return ratio of FXI vs. SPY equates to almost 2.43 to 1 and the return ratio of GXC vs. DIA equates to almost 2.47 to 1.
What does this mean for investors? It means that China is essentially outpacing the performance of the S&P since September 13th and could in fact prolong such returns if the U.S. presidential election results in an unfavorable outcome for investors. If China can continue to demonstrate strength in terms of both Manufacturing PMI and the Manufacturing Output Index, the Chinese-based ETFs may in fact be a much better investment than U.S.-based index ETFs such as SPY and DIA.