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Global Macro: Weak Chinese Data Slam Emerging Markets

Stocks in this article: EEM

NEW YORK (TheStreet) -- Weak Chinese economic data have sent iShares MSCI Emerging Markets  (EEM) lower.

The Chinese manufacturing figure -- the HSBC Purchasing Managers' Index, released early Thursday -- came in at 49.6 for January, versus an expected 50.6. Any number below 50 indicates contraction in the manufacturing sector and furthers the belief that the Chinese economy is slowing down.

Weak Chinese economic figures are now seen as a developing trend. At the beginning of January, numbers for Chinese manufacturing and services sectors came in well below expectations, which was especially surprising given that those sectors outperformed expectations in the U.S. and Europe. 

Meanwhile, Chinese growth figures reported last week confirmed fears about a slowdown in China, as gross domestic product growth for 2013 was reported at 7.7%, getting closer to an important threshold of 7%. The growth rate in China has been gradually declining the past few years, and many believe that once the rate falls below 7%, the country will officially be slowing down.

Weakness in China hurts emerging markets which rely heavily on Chinese demand for their countries' resources.

The emerging-market equity index, pictured below, formed a large head-and-shoulders pattern from September till earlier this month. The catalyst for a break lower came from weakening Chinese economy and higher U.S. interest rates.

The index looks to be in a strong downtrend and could continue to move lower until China reverses its economic sluggishness.

EEM ChartEEM data by YCharts

At the time of publication, the author had no position in the fund mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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