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Global Manufacturing Improving: ETFs in Focus

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Continuing the improving trend of Q3, manufacturing activity kept on maintaining the winning momentum globally in Q4. Readings in several big economies’ manufacturing activities have lately come in favorable giving the signs of strength in global superpowers.

The COVID-19 pandemic and the resultant lockdown has hurt the space a lot in summers. However, the weakness is dispersing slowly with the gradual reopening of economies. Let’s take a look at the data points.

October U.S. Manufacturing At About 2-Year Best

The Institute for Supply Management (ISM) said on Nov 2 that its index of national factory activity rose to a reading of 59.3 last month from 55.4 in September. That marked the steepest growth since September 2018. Economists polled by Reuters had forecast that the index would rise to 56.4 in October.

Faster increases in new orders (67.9 vs. 60.2), new export orders (55.7 vs. 54.3), production (63 vs. 61), and an uptick in employment (53.2 vs. 49.6) and inventories (51.9 vs. 47.1) led to the jump. New orders sub-index reading of 67.9 was the highest since January 2004. Manufacturing employment grew for the first time since July 2019.

Chinese Manufacturing Upbeat Too

The Caixin China General Manufacturing PMI increased to 53.6 in October 2020, better than market consensus and September's figure of 53.0. The latest reading hinted at the sixth successive month of growth in factory activity, and the strongest reading since January 2011, as the post-lockdown rebound in the manufacturing activity continues its winning momentum.

Brazil Manufacturing PMI Hits Record High

Brazilian manufacturing grew at a record clip in October as employment and export orders jumped to new highs.  IHS Markit’s Brazil manufacturing purchasing managers index (PMI) report was decent, but also showed record-high input and output prices due to the consistently weak exchange rate. The headline PMI index rose to 66.7 in October from 64.9 in September, the highest level since the index was first compiled in February 2006.

Euro Area Manufacturing PMI Came in Solid

The IHS Markit Eurozone Manufacturing PMI was revised slightly higher to 54.8 in October 2020, from an initial estimate of 54.4 and compared with September's final 53.7. The latest reading marked the sharpest month of growth in the manufacturing sector since July 2018, as output growth jumped to an over two-and-a-half-year high and new orders increased maximum since the start of 2018, per tradingeconomics.

Global Industrial ETFs in Focus

Given the 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 - Free Report)

The ETF is heavy on the United States, which occupies about 52.6% of the basket. Japan (15.12%), France (6.41%) and the United Kingdom (4.81%) take the next three spots.

Global X China Industrials ETF (CHII - Free Report)

The Global X China Industrials ETF seeks to provide investment results of the MSCI China Industrials 10/50 Index. This fund is heavy on Machinery (22.29%), Commercial Services & Supplies (12.71%), Construction & Engineering (12.1%), Air Freight & Logistics (11.96%) and Electrical Equipment (10.41%).

Industrial Select Sector SPDR Fund (XLI - Free Report)
 
A look at U.S. industrial ETFs like XLI also seems warranted. The fund has the highest exposure to Machinery (19.79%), followed by Aerospace & Defense (19.28%), Industrial Conglomerates (13.15%) and Road & Rail (12.67%).

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