China exchange traded funds were in the red Friday after Deutsche Bank analysts cut their growth outlook on the country, which is seen as a leading indicator for the global economy.
On Friday, Deutsche Bank downgraded China’s growth outlook, citing slowdowns and a possible recession in Europe and the U.S., which may outweigh China’s domestic credit tightening as the largest threat to China’s economic growth, according to MarketWatch. Deutsche Bank also estimates that growth may diminish to 7% in the upcoming quarters.
Deutsche Bank reduced its China growth outlook to 8.9% from 9.1%, Bloomberg reported.
Earlier this week, Morgan Stanley lowered its global economic growth outlook for 2011 and 2012.
Morgan Stanley also reduced its estimate for China’s growth next year to 8.7% from 9%, citing the effects of weaker economies in the U.S. and Europe, according to the Bloomberg report. Expansion in China in 2012 will be 8.3%, down from 8.6%, Deutsche Bank said, citing the “shock” of a U.S. and European Union slowdown, the report said.
The Chinese government is seen taking a more active role to support markets. Chinese investors believed that the country’s state pension fund, the National Social Security Fund, bought $1.56 billion in domestic shares, which provided a boost of confidence in the Shanghai stock market and helped the exchange close higher on Wednesday, report William Kazer and Andrew Browne for The Wall Street Journal.
Analysts point out that the government’s decision to loosen its control over the yuan currency is helping to fight off rising domestic inflation and encourage trade.
“This rise is very encouraging for it breaks with historical precedents,” said analysts at research house GaveKal Dragonomics. “Indeed, in moments of tensions in international financial markets, Beijing’s initial default reaction has always been to freeze like a deer in headlights and prevent any currency appreciation at all costs. But not this time.”
More recently, the Central Bank infused $10.95 billion into the markets, which “signaled the central bank’s stance that stabilizing financial markets is one of its key policy targets, especially when overseas markets are tumbling,” remarked a bond trader in Shanghai.
iShares FTSE/Xinhua China 25 Index Fund (NYSEArca: FXI)
WisdomTree Dreyfus Chinese Yuan Fund (NYSEArca: CYB)
Max Chen contributed to this article.