Exchange traded funds that invest in China have pulled back this week despite the country reporting a nearly 10% jump in gross domestic product for the economy.
China ETFs are in the red for 2011 with several interest-rate hikes by the central bank in an effort to cool rampant inflation. Investors are also worried about a potential “hard” landing for the Chinese economy, which has been an engine of the global recovery.
However, the better-than-expected GDP growth and solid June industrial data are good signs for China ETFs.
China’s economy expanded at a 9.5% rate in the second quarter, which was slightly above the market’s expectation of 9.3%, but down from the 9.7% jump in the first quarter, reports Aaron Back for The Wall Street Journal. Faster services growth and restocking of industrial products helped boost China’s GDP.
Industrial growth surged to a better-than-expected 15.1% in June year-over-year, up from the 13.3% increase in May.
The People’s Bank of China is expected to maintain tight monetary policies for another quarter, then turn to a neutral stance in the fourth quarter, said Qu Honbin, analyst at HSBC. [China ETFs Wrestle with Rate Hikes, Inflation.]
Lu Ting, analyst at Bank of America-Merrill Lynch, believes the Chinese economy is on course for a soft landing and that the central bank will ease up on intensive rate and reserve requirement hikes. The Chinese government is expected to maintain a “tight monetary, loose fiscal” policy, added Ting.
Strong export growth will help China maintain robust annual growth for 2011, commented Brian Jackson of Royal Bank of Canada. However, Jackson believes growth will diminish in the third quarter and bounce back in the fourth.
Todd Lee, Xianfang Ren and Alistair Thornton of HIS Global Insight projected continued deceleration in GDP growth for the second half. The analysts point to a 10-year record high nonfood inflation in June, arguing that further tightening will remain in the third quarter but ease up in the fourth as inflation ebbs.
Chinese ETFs include:
- iShares FTSE China 25 (NYSEArca: FXI)
- SPDR S&P China ETF (NYSEArca: GXC)
- PowerShares Golden Dragon Halter USX China Portfolio (NYSEArca: PGJ)
- Guggenheim China All-Cap ETF (NYSEArca: YAO)
For more information on China, visit our China category.
iShares FTSE China 25 Index Fund
