The beginning of Q3 showed an improving trend in manufacturing activity globally. Readings in several big economies’ manufacturing activities came in favorable in recent times giving cues of strength in global superpowers.

This area had long been an issue given global growth worries and the COVID-19 pandemic translating into softer demand. However, the weakness is dispersing slowly now with the gradual reopening of economies after the pandemic-led full-fledged lockdown. Let’s take a look at the data points. Most of the PMI readings came in higher than 50, which points to an expansion in activity.

U.S. Manufacturing at a 1-1/2 Year High

The U.S. ISM Manufacturing PMI came in at 54.2 for July 2020, up from 52.6 in the previous month and surpassing market expectations of 53.6. That is the highest reading since March 2019 as manufacturing activity is recovering after the disturbance caused by the pandemic. U.S. manufacturers expanded in July for the third successive month.

Manufacturing makes up about 11% of the U.S. economy, per Reuters. New orders jumped sharply (61.5 versus 56.4 in June) as new export sales returned to growth, while employment shrank at a softer pace (44.3 versus 42.1) (read: U.S. Manufacturing at a 1-1/2 Year High: 5 Winning ETF Areas).

Chinese Manufacturing Upbeat Too

The Caixin China General Manufacturing PMI rose to 52.8 in July 2020 from 51.2 in the previous month, beating market consensus of 51.3. The reading marked the third consecutive expansion in factory activity and the fastest pace in nearly a decade, as consumer demand continues to rebound.

Both output and new orders grew the most since January 2011, while buying level expanded for the third month in a row and at the quickest clip since January 2013. On the price front, input prices rose driven by higher cost of raw material and output charges increased at the fastest pace in nearly two years, per tradingeeconomics.

Euro Zone Too Rebounding

Euro zone manufacturing activity expanded for the first time since early 2019 in July as demand rebounded. IHS Markit’s final Manufacturing Purchasing Managers’ Index bounced to 51.8 in July from June’s 47.4 – its first time above the 50 mark. “Production [is] growing at the fastest rate for over two years, fuelled by an encouraging surge in demand,” said Chris Williamson, chief business economist at IHS Markit, as quoted on Reuters.

Global Industrial ETFs in Focus

Given a raft of upbeat manufacturing data points in some key economies, a look at the below-mentioned global industrial ETFs makes sense (see all industrials ETFs here).

iShares Global Industrials ETF (EXI Quick QuoteEXI - Free Report)

The ETF is heavy on the United States, which occupies about 52% of the basket. Japan (15.0%), France (7.03%) and the United Kingdom (5.15%) take the next three spots.

Global X China Industrials ETF

The Global X China Industrials ETF seeks to provide investment results of the Solactive China Industrials Total Return Index. This fund is heavy on Machinery (21.77%), Construction & Engineering (13.2%), Air Freight & Logistics (12.58%) and Commercial Services & Supplies (11.28%).

Industrial Select Sector SPDR Fund (XLI Quick QuoteXLI - Free Report)
 
A look at U.S. industrial ETFs like XLI also seems warranted. The fund has the highest exposure to aerospace & defense (20.56%), followed by machinery (19.2%) and industrial Conglomerates (13.45%).

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