What is the manufacturing PMI and why does it matter?

The Manufacturing Purchasing Managers' Index (PMI) is a monthly economic indicator that measures the health of the manufacturing sector. A reading above 50 indicates expansion, while below 50 signals contraction. Investors watch this closely because manufacturing activity often predicts broader economic trends. When China's PMI rises, it suggests factories are receiving more orders and increasing production, which typically benefits companies throughout the industrial supply chain.

How does China's manufacturing sector affect global companies?

As the world's largest manufacturing hub, China's industrial activity has widespread effects. When Chinese factories increase production, they need more raw materials (benefiting mining companies), more machinery and equipment (helping industrial manufacturers), and more logistics services (boosting transportation firms). Even companies outside China can see significant revenue growth when Chinese manufacturing rebounds, especially if they supply essential materials or technologies to Chinese factories.

What are cyclical stocks and why are they included in this group?

Cyclical stocks are shares in companies whose performance tends to follow economic cycles of expansion and contraction. Many companies in this group—like miners, steel producers, and machinery manufacturers—are cyclical because their revenues are closely tied to economic activity. These stocks often decline during economic slowdowns but can experience strong growth during recoveries. They're included because China's manufacturing rebound represents a potential turning point in the economic cycle that could drive significant gains for these businesses.

What's the difference between upstream and downstream companies in this collection?

Upstream companies in this collection (like BHP, Vale, and Rio Tinto) are primarily involved in extracting and processing raw materials like iron ore and copper that are essential inputs for manufacturing. Downstream companies (like Caterpillar, Rockwell Automation, and China Yuchai) produce machinery, components, and systems used in manufacturing processes or the movement of finished goods. Both types benefit from manufacturing growth, but upstream companies typically respond first to increased demand, while downstream companies may see more sustained benefits as the recovery matures.

15 handpicked stocks

China's Manufacturing Rebound

Early signs of recovery in China's manufacturing sector are creating investment opportunities. This collection features carefully selected companies positioned to benefit as the world's largest manufacturing economy starts to stabilize and grow again.

Han Tan | Market Analyst

Updated 2 days ago | Published at जून 30