Chinese stock indexes and exchange traded funds have been languishing on concerns the economy may be facing a hard landing.
The closely watched China Shanghai Composite Index is sitting near its lowest level in over a year amid talk the central bank may cut lenders’ reserve requirements “to boost lending to small companies hurt by a cash crunch,” Bloomberg reported.
“Every time the stocks fall considerably, there’s speculation there’ll be reserve-ratio cuts,” said Zhang Gang, a strategist at Central China Securities Holdings Co., in the Bloomberg story. “The weekend’s here and there’s always the optimism it may happen. Such a rebound may not last unless the cut really happens.”
Investors are also worried that China’s real estate market could weaken after a credit boom.
The Chinese economy has been slowing down from its breakneck speeds, and some observers believe that China’s market is due for a severe correction. On the other hand, Chinese assets and related ETFs may only be stuck in a temporary lull, as fund managers believe.
Both the iShares FTSE/Xinhua China 25 Index Fund (NYSEarca: FXI) and SPDR S&P China ETF (NYSEArca: GXC) are down a little over 18% for the past year.
Fund managers say speculation that China is in for a hard landing are overblown, Gregg Wolper, senior mutual-fund analyst at Morningstar, says. A hard landing refers to the belief that China’s economy may head into a full blown recession. [China ETFs Struggle on ‘Hard Landing’ Fears]
Still, managers expect the Chinese economy to slow due to the government’s actions on cooling the market.