Just when you thought it was safe to come out from that rock you've been hiding under for the past four years, it appears China may be ready to send out its first smoke signals of distress.
Data released this morning by China shows that its PMI - a measure of manufacturing growth whereby anything over 50 represents expansion and anything under 50 contraction -- fell to 48.1 in March, led by a fifth consecutive month of declines in manufacturing activity. Although all five components that make up the PMI indicate contraction, none is more bearish than the new-orders subindex, which came in at a reading of 46.2!
If you recall, China had aggressively been raising its lending rate and tightening lending in order to control the rapid expansion of its economy and attempt to slow the meteoric rise in housing prices. With those policies now working (perhaps too well), the rest of the world is left wondering whether China can afford to support the rest of the globe on its shoulders or if the recovery is about to hit a wall.
Weakness in China has already been factored into many sectors, but I don't think anyone was prepared for the extent of the weakness in the manufacturing data this morning.
Mining and resource companies are likely first in line to feel the pain if China's economy continues to weaken. Being the biggest consumer of copper, Freeport McMoRan Copper & Gold
Not even energy stocks are immune. As the biggest consumer of energy in the world, coal stocks like Patriot Coal
The trickle-down of continued weakness in China could even hit the technology sector. Sales of televisions have been anemic for years, but with China's growth slowing, those sales could actually get worse. Sony
In short, China has all of the potential to bring the global economy to its knees if it continues to contract. Clearly, it's impossible to tell exactly how bad it could get, but consider yourself warned that things are not moving in the right direction at the moment.
Will China turn itself around, or are we headed for the next major wave down? Share your thoughts in the comments section below.
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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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