The iShares FTSE/Xinhua China 25 (FXI) exchange traded fund (ETF) was up a whopping 53.3% last year. So far this year, it’s down 13.5%.
What’s going on over there? asks Trade Radar Operator for Seeking Alpha. Are there fundamental developments in the economy that could push the ETF this way or that, or is it just technical trading?
If the United States manages to dodge a deep recession China can continue its growth spurt, but the government is the true determinate for this country. If they allow the yuan to appreciate and if they raise rates aggressively, it could throw Chinese stocks into a turmoil and leave them overvalued and vulnerable.
Here a few developments in the Chinese economy that Trade Radar Operator feels are important:
- Inflation: China’s consumer price index was up 7.1% in January, a level that cannot sustain and must level off. With prices rising it is likely China may allow its currency to appreciate more rapidly.
- Interest rate outlook: Central banks are expected to raise rates. Depositors are getting a negative rate of return against inflation. With the major defensive for fighting inflation an interest rate hike, there will be a tightening this year.
- Economic Activity: China has developed a stronger domestic market and is experiencing growing trade with Asian neighbors. China appears to be protected by decoupling.
Keep a close watch to determine the next step for this growing country.
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.