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China Sell-Off Proactive Or Overreaction?

Worse than expected data out of China led to speculation that the recovery may be at risk.

Specifically investors were spooked by the HSBC China Manufacturing PMI, or purchasing managers index, which fell to 50.4 last month from 52.7 in May. That's a 14 month low.

Also a separate survey released by Beijing showed a similar downtrend. The government further alarmed investors by saying that the outlook for exports was "grim."

As a result commodities in general -- and oil in particular -- sold off sharply, as investors bet on a pronounced slowdown.

Are investors being proactive or just plain overreacting?

Richard Kang, Emerging Global Advisors CIO falls into the overreacting camp. "The long term story is still really good," he says. "I don’t see anything in the US, Europe or Japan that looks as good."

He doesn't think the latset economic data is alarming in the least; rather it reflects that China "is trying to cool their economy in an intelligent way so they don't have a replay of 2002 or 2008."

What's the trade?

I’d play China longSuntech and Aluminum Corp , says Kang.

Meanwhile on the Halftime Report, David Riedel, of Riedel Research told us, "Investors should get a chance to own China stocks cheaper over the next couple of weeks – across the board I’d look to own names 20% lower than where they are today -- but long-term I’m a buyer."





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Trader disclosure: On July 1, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour owns (AAPL), (BAC), (F), (MON); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Terranova owns (MON), (AGU), (KO), (XOM), (TEVA), (RDS.A), (GMCR), (UPL), (GS); Terranova is short gold; Terranova owns (GLD) July 123 puts; Terranova owns (GS) JULY 130 CALLS; Terranova owns (GS) JULY 135 CALLS; Grasso owns (ASTM), (ABK), (BAC), (BGP), (C), (CSCO), (DYN), (JPM), (LPX), (MO), (NDAQ), (PFE), (PRST)

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