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With brokers fleeing China, tomorrow’s factory numbers are crucial (FXI, EEM)

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The euro has forced UBS and Citigroup to cut their forecasts for Chinese growth and Goldman Sachs is telling clients to flee Hong Kong stocks. Everyone else is holding their breath for tomorrow night's factory numbers.The "flash" purchasing managers' index (PMI) that came out a few weeks ago was terrible, reflecting an outright contraction of Chinese industrial activity.

With Beijing still so reliant on manufacturing as the backbone of its economy, if the official PMI comes in as bad on Wednesday, we could see confirmation that the Chinese miracle is in need of a rest.

Citi has already cut its estimate for 2012 GDP expansion in the country to 8.4%, pulling back a full 30 basis points. UBS is even more bearish on China, predicting growth of just 8% next year.

And Goldman is no longer long on China after a recommendation to buy Hong Kong evaporated over the last few weeks.

The analysts are braced for the euro to cut deep into Chinese factory activity next quarter. That might be a little fast, since as yet no aggressive austerities have kicked in for Europe -- but that is exactly why the PMI is so important.

Any hint of weakness in the numbers foreshadows worse ahead. And, unfortunately, even if the numbers are great, the prospect of a European slowdown will still be a headwind for China well into 2012 if not beyond.

This might be a self-fulfilling prophecy unfolding here for China funds like FXI ( quote ) as well as the global portfolios like EEM ( quote ).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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