Exchange traded funds tracking China have rallied in 2012 and moved above the 200-day average on hopes officials have engineered a soft landing for the economy.
China has lowered bank reserve requirements and kept interest rates low in an effort to stimulate the economy and its markets.
“There are a number of issues that could weigh on Chinese equities in the near term, the most significant being slowing exports due to weakening global growth. In November 2011, the Chinese manufacturing sector contracted for the first time in nearly three years, which reflected declines in both export orders and new domestic orders,” John Gabriel for Morningstar wrote in an analyst report. [China ETFs: Year of the Dragon?]
The latest moves by the Chinese government to lower the reserve requirement ratio for banks by 50 basis points is indicative that the government is dedicated to maintaining high single digit GDP growth, adds Gabriel. [China ETFs Bolstered by Reserve Cut]
For the near future, the Chinese government must tackle stimulating domestic growth without creating any new asset bubbles, exert control over the yuan’s exchange rate and maintain stability and balance within the real estate and banking sectors.