The Chinese economy is very important to the global economy. After all, there are approximately 1.3 billion people in the country and that large number leads to a lot of consumption and consumer spending for corporations. Companies such as General Motors Co (NYSE:GM), WYNN Resorts (NASDAQ:WYNN), and Yum Brands Inc (NYSE:YUM) are just a few of the major corporations in the world that are highly dependent on the Chinese economy. Many of the leading base and industrial metal stocks are also affected by the Chinese economy. Leading mining companies such as Rio Tinto plc (NYSE:RIO), and BHP Billiton Limited (NYSE:BHP) also depend on Chinese growth for their own industry. After all, just look at a chart of the base metal and industrial metal stocks and you will see how they have declined when the Chinese economy slowed down.
One of the leading indicators that investors will follow for growth is the HSBC manufacturing Purchasing Managers’ Index. In April, this number declined to 50.4 from 51.6 in March. Please note, any reading above 50.0 indicates growth, but it is easy to see how this number is declining indicating a weakening economy.
One of the best ways to follow the Shanghai Index and the Chinese economy is to follow the charts. At this time, the Shanghai Index will have near term support around the 2138.00 level. The next important support levels are 2073.00 area, and the important double bottom from December 2012 at 1950.00. It is important to note, the Shanghai Index is trading below the important daily chart 50-day moving average. This is a generally a sign of weakness when price trades below the 50-day moving average. This current weakness tells us that the 2300.00 level will be important near term resistance on the daily chart should the Shanghai Index rally higher.