Matthew Weinschenk pointed out yesterday that although China’s market is severely beaten down, it doesn’t mean investors should take it as a buying opportunity.
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“We know there are a lot of risk factors in China right now,” he said. “The real estate market is set for a collapse. The growth, so far, has largely been propped up by government spending. Political tensions are on the rise… Besides, who knows what other hidden risks are lurking behind the scenes, keeping prices down? There’s too much we can’t know about a semi-planned economy with zero transparency.”
Speaking of more risks…
China’s Purchasing Managers’ Index (PMI) – which indicates the general health of the manufacturing sector – fell to 47.8 this month. That’s a nine-month low and a drop from 49.3 in July.
Any reading below 50 suggests a contraction is in the works. And the numbers have been below that level since late last year.
Managing Director of China Merchants Securities, Ronald Wan, says that the PMI is “much worse than we have expected. It actually signals a much worse economic situation in China… We originally thought that the economy will recover in the third quarter, or in July and August. But based on the figures we have seen, well, I think we may be too optimistic.”