ETF Trends
ETF Trends

The economic woes and faltering exchange traded funds (ETFs) of China may spill over to the new year as politically and socially sensitive anniversaries presage misfortune. But rest assured, China does have a plan.

The high levels of yesteryear’s economic growth is now shrinking and the Communist Party is having difficulties in placating the masses, according to the Economist. As IMF predicts Chinese GDP of 5%-6% and the World Bank estimates 7.5% for the next year, the main pillar of support for the Communist Party, the new middle class, is becoming dejected by official calculations of 8% being the minimum level of growth needed for stable employment.

China is looking at uncertainties that thwart its economic and social welfare such as the resilience of its political system to the current market stresses and how Chinese consumers will respond to the crisis. By keeping the middle class spending and happy, the Chinese economy should be relatively gratified.

Then there are the pending politically sensitive anniversaries in the coming months that will serve as a focal point for the party’s shortcomings to the already unsatisfied citizenry.

A Chinese stimulus package will feature measures to encourage consumers and include spending on social services. China will also be investing heavily into infrastructure projects, cutting taxes and cutting interest rates to maintain higher growth.

But be wary that social turbulence in China usually creates tensions with the west with exacerbated traded friction due to protectionist strategies that will devalue their currency in hopes of boosting Chinese exports.

In a year-end review on Marketplace, Scott Tong notes that China hasn’t been immune from the rest of the world’s troubles. The good news is that the infrastructure package will start to kick in next spring. The bad news is that if China slows down much more, the country is looking at social instability.

  • SPDR S&P China (GXC): down 51.7% year-to-date

ETF GXC performance

  • iShares FTSE/Xinhua China 25 Index (FXI): down 49.6% year-to-date

ETF FXI Performance

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.