I thought this chart was really interesting and worth highlighting, particularly given I’ve been writing a lot about emerging markets recently. The reason I highlight this chart is because in October the emerging markets composite manufacturing PMI rebounded to a 5-month high. Now it is important to note that this is a relatively volatile index month-to-month and ideally we’d like to see another stronger or at least stable month to confirm… but this is a really promising sign. The worst case scenario for EM from an indicator perspective would have been to see a precipitous and unabated decline and breakdown through the 50-point mark which delineates economic expansion vs contraction. In short – it looks like EM has stopped slowing.
However, I would highlight, even though all 4 of the major EM economies (China, India, Brazil, Russia) saw their PMI increase on the month, the big elephant in the room is still China. There are still a number of key headwinds facing China’s economy, and for this to really turn around in a meaningful way we’d need to see China undertake more forceful stimulus measures – and I don’t think we’ve seen the max-pain point that will drive them to do that just yet. So while I think this is indeed a positive sign for EM, I think the ABC of criminology comes to mind… “Assume nothing, Believe no one, and Confirm everything” – indeed I will be looking for data from a few different key sources in the coming weeks that either confirms or denies this nascent rebound.