China ETFs Facing a Host of Challenges

After months of runaway growth, China and its exchange traded funds (ETFs) are gripped with the attendant growing pains. How can this large economy get itself back on track?

China’s latest trade surplus figure announced this week is a healthy $1.68 billion. The ETF Professor for Benzinga reports that analysts had been expecting a deficit of $1.44 billion, so April’s report should be viewed in a bullish light. Also, exports are up 31% from one year earlier, and imports are up 50%. [China is Hot; Handle with Care.]

There are reasons to still watch China’s moves in the coming months with caution, though. After all, its citizens are now concerned about property bubbles, the prospect of monetary tightening and, worse, a slowdown of its rebounding economy.

• Stuart for Metal Miner reports that risks to China’s economy are still prevalent, as headline PMI for April edged up 0.6 to 55.7 over March despite the quantitative tightening the authorities have been applying since the beginning of the year. A continuation of added consumer price pressure may cause interest rates to rise soon.

• Meanwhile, copper supplies in China still exceed demand, indicating that premiums may soon feel downward pressure. Glenys Sim for BusinessWeek reports that premiums paid by Chinese importers, typically a good indicator of demand, increased to between $70 and $100 a metric ton over the London Metal Exchange cash price last week, up from $60 to $80 last month. Arbitrage is still positive but deals are still rare. [Ways to Play China's Healthy GDP.]

• Consumer prices are rising. Last month, they shot up 2.8% from a year earlier – far more than expected, reports The Wall Street Journal.

For more stories about China, visit our China category.

• iShares FTSE/Xinhua China (NYSEArca: FXI)

• Claymore/AlphaShares China All-Cap (NYSEArca: YAO)

• Claymore/AlphaShares China Small-Cap (NYSEArca: HAO)

• Global X China Consumer (NYSEArca: CHIQ)