China’s economy and exchange traded funds tied to the country’s equities market may be in for a hard landing as economic data takes a turn for the worse and the country faces deleveraging pressure.
China ETFs are down about 20% in 2011 with two weeks left in the year.
China’s Homelink property website revealed that new home prices in Beijing plunged 35% in November month-over-month, reports Ambrose Evans-Pritchard for the Telegraph. In August, construction firms stated that unsold inventories reached $50 billion and it has now degenerated into a “spiral of downward expectations,” Professor Patrick Chovanec from Beijing’s Tsinghua School of Economics commented. [ETF Spotlight: China Real Estate]
The country’s M2 money supply fell 12.7% in November, a 10-year low, while new lending dropped 5% month-over-month.
Meanwhile, the Shanghai Index has declined 30% since May and it is currently 60% lower from its peak back in 2008. In comparison, Wall Street experienced a similar drop back in the early years of the Great Depression. [China ETFs Hit on Weak Manufacturing Data]
“Investors are massively underestimating the risk of a hard-landing in China, and indeed other BRICS (Brazil, Russia, India, China)… a ‘Bloody Ridiculous Investment Concept’ in my view,” Albert Edwards at Societe Generale, said in the report. “The BRICs are falling like bricks and the crises are home-blown, caused by their own boom-bust credit cycles.”