China's Buying Spree: A Boon for Commodity ETFs? | ETF Trends

China’s lust for raw materials seems rather insatiable these days as the country buys and invests in them at every opportunity. But the increased demand for raw materials may be a boon for commodities-related exchange traded funds (ETFs).

China Investment Corp., the country’s sovereign wealth fund, purchased 2 million shares worth $78.6 million, or 3.48% of total shares, of United States Oil (NYSEArca: USO), and acquired 1.45 million shares worth $155.6 million, or 0.4% of total shares, of SPDR Gold Shares (NYSEArca: GLD), report Christian Schmollinger and Kyoungwha Kim for BusinessWeek. China is now the fourth-largest holder of USO. China bought a range of ETFs, covering everything from Japan to global materials funds, in an apparent bet on the global recovery.

Timothy Condon, chief Asian economist with ING Groep NV, says that China is hedging against the impact that their purchases of raw materials have on commodity prices. In total, CIC’s filing accounts for $9.6 billion of U.S.-listed assets; ETFs make up 25% of that, says John Spence at MarketWatch.

After years of incurring trade surpluses, China is standing on huge reserves of cash that could be used to amass more raw materials, according to SteelOrbis. As it stands, the East is purchasing materials from United States and Japanese sources. With higher demand, prices for the materials would inevitably go up. However, European sources are not a large provider to the East, and this may pose a problem to European scrap producers who are over-producing and unable to capture a market for their goods. [China’s Quest for Coal and Steel.]

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  • Market Vectors Coal (NYSEArca: KOL)
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According to Destatis, German exports plummeted $1.121 trillion last year while China’s exports totaled $1.202 trillion, reports Geoffrey T. Smith for The Wall Street Journal. Germany has held onto the title of the world’s No. 1 exporter, but China is quickly catching up as a result of the collapse in business confidence and investment during the financial crisis.  [Why China may see more growth.]

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