China has expressed confidence in Europe’s economy and debt, giving exchange traded funds (ETFs) a nice bounce today. But have investors been extending that same confidence to China’s growing economy? Perhaps not lately, though there are still reasons to watch the country.
Foreign investors are seeking out the highly restricted mainland shares and are even paying a premium on Chinese stocks – Beijing regulators enforce investment quotas that are managed by investment banks, reports Alex Frangos for The Wall Street Journal. As a result, the iShares FTSE/Xinhua China (NYSEArca: FXI) has traded above its NAV at points.
While domestic traders worry about China’s attempts to slow down growth, global investors are betting on robust growth even once the monetary policy returns to its norm. Additionally, Shanghai’s shares are now trading at 14.6% times expected earnings, or 17% below their eight-year average.
Food prices have been pushing up China’s inflation, which is lending more weight to potentially tighter monetary policies, writes Andrew Peaple for The Wall Street Journal. In April, the consumer price index increased 2.8% and food prices jumped 5.9% – food is around 33% of China’s CPI. Some indicators such as meat, poultry and some vegetables prices have been on the decline, which may suggest food-price inflation could be contained. [China ETFs Facing a Host of Challenges.]
Some points that back China’s growth outlook:
- China will import almost 1 million metric tons of corn from the United States and will likely buy more, reports Aya Takada for BusinessWeek. The government is storing imports and selling from inventories to reduce rising domestic prices. Ruan Wei, senior researcher at the Norinchukin Research Institute Co. in Tokyo, expects China may import up to 3 million tons of corn this year. [New ETF Will Be First Corn Pure-Play.]
- According to Wanxiang Resources, China’s demand for copper may surge to as much as 12%, or 8.96 million metric tons, through the rest of 2010, says Todd Shriber for Chinavestor. China has imported around 1.1 million tons of copper through the end of April.
- In anticipation of greater oil demand, China may raise annual crude-oil refining capacity by 50% to 750 million metric tons of crude oil a year by 2015 from its current 507.5 million tons, reports Wang Ying for BusinessWeek. China’s GDP jumped 11.9% in the first quarter, aided by a 30.5% increase in exports last month.
For more information on China, visit our China category.
- SPDR S&P China (NYSEArca: GXC)
- Claymore/AlphaShares China All-Cap (NYSEArca: YAO)
- iShares FTSE/Xinhua China 25 (NYSEArca: FXI)
- PowerShares USX Golden Dragon Halter (NYSEArca: PGJ)
- Global X China Consumer ETF (NYSEArca: CHIQ)
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.