ETFs that invest in China continued their recent strength Friday after strong manufacturing data reinforced the bullish view that the economy is on the mend.

“Business conditions for Chinese manufacturers improved further in December, pushing an initial reading of HSBC’s Purchasing Managers’ Index to a 14-month high,” MarketWatch reports.

The iShares FTSE China 25 Index Fund (NYSEArca: FXI) rose nearly 2% in early U.S. trading Friday. The ETF has rallied during the fourth quarter after lagging developed markets through much of 2012. [China ETF Rallies 16% in Three Months on Turnaround]

“Released Friday, HSBC’s so-called ‘flash’ manufacturing PMI for December — a closely watched indicator of the world’s second-largest economy — came in at 50.9, compared to a final print of 50.5 for November and 49.5 for October. A reading above 50 signals an improvement in activity, while one under 50 represents contraction,” according to MarketWatch. [ETFs to Access China’s New Growth Phase]

Chinese stocks surged the most since October 2009 “on speculation state-backed institutions were buying shares as a manufacturing survey added to optimism the world’s second-largest economy will rebound,” Bloomberg News reported. [Don’t Ignore the China ETFs]

“It looks like institutional investors are re-entering the market and they have to increase their stock positions now in order not to miss the boat,” said Dai Ming, a fund manager at Hengsheng Hongding Asset Management Co. in Shanghai, in the article. “The economy has stabilized.”

Separately, Bloomberg reported China scrapped a ceiling on investments by sovereign wealth funds and central banks in its capital markets, part of efforts by the government to encourage long-term foreign ownership and shore up slumping equities. [The Case for China ETFs]

FXI and other China ETFs have been outperforming the S&P 500 recently after trailing the U.S. in the first three quarters of the year.

“Better economic data is now breaking bearish sentiment in the world’s second-largest economy. The trend higher appears very much to still be intact, and a new cycle of strength may be emerging in Asia. This is important because a bet on China is a bet on renewed export growth,” Michael A. Gayed writes for MarketWatch.

iShares FTSE China 25 Index Fund


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