China's Latest Manufacturing Report Was Bad - Here's Why We Can Ignore It

China's Flash Manufacturing PMI fell to a four-month low of 50.4 in February from 52.3 in January.

Economists were looking for a reading of 52.2.

Despite this unexpectedly low reading, markets are taking the report in stride. Chinese stocks are trading up.

"We suggest not taking this flash PMI seriously as this PMI data point was heavily distorted by the Chinese New Year holiday," writes Bank of America Merrill Lynch economist Ting Lu.

While PMI is often regarded as one of the best economic indicators available, Lu believes it is "not a good barometer." At least this time around. From his latest note:

Why PMI is not a good barometer
Neither the NBS nor the HSBC could do a good job in creating PMI during the Chinese New Year holiday. First, there could be a large amount of missing values for already small sample sizes (HSBC at around 500, NBS at 3000) due to the holiday. This is especially true for the HSBC February flash PMI this year as the holiday was from 9 to 15 Feb and the private sector’s holiday could last until end-Feb. Second, PMI data are heavily seasonally adjusted, but the season adjustment is quite inaccurate due to the different timing of CNY holidays and short history (since year 2005).

In other words, Lu believes this may turn out to be a blip in a string of upward trending data. Let's hope he's right and that this isn't an inflection point to the downside.