An exchange traded fund indexed to Chinese stocks is threatening to fall to a new 52-week low despite persistent rumors that China will be one to bail Europe out of its debt mess.
The iShares FTSE China 25 Index Fund (NYSEArca: FXI) is down 14% over the past three months. Weakness in Chinese stocks does not bode well because they are seen as a leading indicator for the global economy.
Major Chinese stocks continued to drop on news that the central bank sold more than $3.13 billion in bills to major lenders, which diminished liquidity from the markets, according to Bloomberg. The Shanghai Composite Index declined 1.2% last week and currently sits at its lowest level since September 6. Asian stocks were mostly down on speculation that Greece might default.
“Although there’s a small risk of a hard landing for China’s economy, a possible rebound in inflation and the impact of worsening European debt crisis on the global economy still remain the biggest concern to investors,” Wu Kan, a fund manager at Dazhong Insurance Co., commented. “There’s also no sign that policies will be loosened in the short term. Stocks might test a new low.”
Due to growing concerns that tighter monetary policies will reduce commodities demand, a measure of 48 material stocks dropped 1.9% Tuesday.