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Output from China’s manufacturing sector slowed to its weakest in almost two years in January, according to the Caixin/Markit Purchasing Managers Index. The index dropped to 49.1 in January from 50.9 in December. In the index a reading below 50 indicates that output is contracting rather than expanding. The January level is the weakest since February 2020 when much of the country was on lockdown during the first wave of the Covid-19 virus. (The private Caixin-Markit PMI often differs substantially from the official government PMI.)

The cause of the slowdown looks to be factory shutdowns forced by China’s zero-Covid policy, although the traditional annual factory closures for the Lunar New Year holiday certainty contributed. (And Beijing ordered some factories in and near the capital to close to clean up air ahead of the winter Olympics.)

The subindexes for output and total new orders in January fell to their lowest since August. Overseas demand shrank at an even faster pace. New export orders in January dipped to the lowest level in 20 months.

The manufacturing slowdown in January is likely to crop up–like a game of Whac-A-Mole–unpredictably throughout the global supply chain. Nobody knows who will get hit hardest–until the damage gets reported.

But the slowdown is also a challenge to the People’s Bank, which has been handed the task of stimulating growth in an economy battered by Covid-19 and by the collapse of China’s real estate sector (with the accompanying crunch to spending by local governments that provide much of the country’s infrastructure capital.)

I’d expect that the January data will push the central bank to even more stimulus after the Lunar New Year Holiday. Which would be good news for China’s stock markets.

All of this is why I switched my non-U.S. exposure in my Perfect 5 ETF Portfolio on my subscription JubakAm.com site to the Shares Large Cap China ETF (FXI) on January 3, 2022. The ETF is up 3.72% since that pick as of January 31.