China’s $586 billion economic stimulus package just may provide enough support to the East Asian country and enable an early recovery of its economy and exchange traded funds (ETFs).
The World Bank anticipates that China’s economy will recover sometime in the middle of 2009 and will take full hold in 2010, which will provide economic stabilization to East Asia and the Pacific Region. Although a recovery will take place at some point, economic growth will be a far cry from the 10% that the nation once boasted. The reason behind this is that China’s economy is heavily dependent on the global economy and until the global economy recovers, China will not be able to make a full recovery. In fact, the World Bank forecasts growth to be 6.5% for 2009, states Wang Bo of the China Daily. While it’s a growth rate many other nations might envy, for China, this is a sharp slowdown.
The improvement of the following economic indicators indicates that a recovery is underway:
- The Purchasing Manager’s Index of the manufacturing sector rose four consecutive months to 52.4, the first time the index has crossed the 50-point mark since July 2008.
- Urban fixed asset investment surged by 26.5% in the first two months of the year and new yuan loans reached a record high of 2.7 trillion yuan
- Consumer confidence is much stronger than in other nations. – half of the Chinese believe that their economy is getting stronger compared to 20% of the British and Japanese
Although China is on the road to recovery, keep in mind that there is still a gloomy outlook on developed economies and this will most likely hinder place some downward pressure forces on China’s economy. If you want to grab exposure to China, take a look at the following ETFs:
- iShares FTSE/Xinhua China 25 Index Fund (FXI): up 4.13% year-to-date and has crossed both its 50- and 200-day moving averages
- SPDR S&P China ETF (GXC): up 4.6% year-to-date and has crossed both its 50- and 200-day moving averages
Kevin Grewal 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.