Are China ETFs In for a Hard Landing?
March 21st at 7:00am by Tom Lydon
China exchange traded funds have been losing ground in March on renewed fears the fast-growing market may be in for a hard landing as the country tempers its economic outlook.
Global markets were unsettled Tuesday on concerns over China’s steel production and after the nation raised fuel prices. [China ETFs Fall]
Last year, observers hoped that the lull in Chinese growth would only amount to a “soft landing” where China’s markets, along with country-related exchange traded funds, would quickly regain their footing. But these hopes are quickly being dashed as more signs point to a “hard landing.”
Some of the largest China-related ETFs include iShares FTSE/Xinhua China 25 Index Fund ETF (NYSEArca: FXI), SPDR S&P China ETF (NYSEArca: GXC), iShares MSCI China ETF (NYSEArca: MCHI) and Powershares Golden Dragon Halter USX China Portfolio ETF (NYSEArca: PGJ).
According to Adrian Mowat, JPMorgan Chase & Co’s chief Asian and emerging market strategist, China’s economy is already in a hard landing, reports Weiyi Lim for Bloomberg.
“If you look at the Chinese data, you should stop debating about a hard landing,” Mowat said at a conference in Singapore. “China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.”
The Shanghai Composite Index dropped 2.6% Wednesday after Premier Wen Jiabao stated that home prices are “far from a reasonable level,” fueling concerns that the government will continue to depress the property market, which could slow economic growth.
Mowat pointed out that fixed-asset investments into the real estate sector is up while property demand is down, which could lead to diminished construction activity.
“One should be concerned about what’s happening in the China property market,” Mowat said at the conference. “People are too complacent that the government can turn what’s going on in this market.”
Premier Jiabao projected that the Chinese economy will expand 7.5% for the year, down from the average 8% average over the past seven years. [China ETFs Slip on Lower Growth Forecast]
However, others believe that the doomsayers are being histrionic. Yale University Professor Stephen Roach said that China’s hard landing concerns are “vastly overblown.”
“I don’t think the banking system will collapse and the property bubble will burst,” Roach said at a conference in Shanghai. “These are all exaggerations.”
For more information on China, visit our China category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.