China ETFs Weak on Credit Jitters, Economy

June 18th at 11:05am by John Spence

The iShares FTSE China Large-Cap ETF (NYSEArca: FXI) has been under pressure recently amid worries a spike in short-term lending rates could trigger wider liquidity problems in the world’s second-largest economy.

Trading in FXI was brisk Tuesday morning as investors continued to focus on a report from The Daily Telegraph on China’s so-called shadow banking system and a warning from Fitch Ratings.

The ratings agency said China’s credit bubble in unprecedented in modern world history. “China’s shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned,” according to the report.

Chinese interbank lending rates have surged following reports China Everbright Bank failed to repay a loan from Industrial Bank Co.

The Shanghai interbank offered rate, known as Shibor, is “telegraphing the rising stress in the opaque financial system of the world’s second largest economy,” reports Matt Phillips for Quartz. “What does the spike in rates mean? Large banks are increasingly leery of tapping into their pools of cash to lend to each other.”

ETF traders are positioning for more weakness in Chinese stocks since the price of put options on FXI has gotten expensive lately. [It’s Getting Pricy to Bet Against China ETFs]

Investors are also worried about lackluster economic data from China. A record 7 million students from universities and colleges across China are set to graduate but jobs are getting more scarce as the economy falters, the New York Times reports.

iShares FTSE China Large-Cap ETF

The opinions and forecasts expressed herein are solely those of John Spence, 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.

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