The downturn in China ETFs and other emerging markets this month is a warning sign for the health of the global economy.
The iShares FTSE China 25 (NYSEArca: FXI) is in negative territory for the year, and is down about 20% from the February high.
“What was once world’s economic engine is sputtering, at least as far as the stock market is concerned. The benchmark Shanghai Composite in China just broke support and dropped to a 42-month low,” writes Michael Kahn for Barron’s.
“Technicals from trend to momentum look weak. At this rate, the lows seen at the end of the last bear market in 2008 are well within reach,” he said. [ETF Chart of the Day: China]
The weakness in Chinese ETFs is worrying because of the country’s importance in the global economy. [China ETF Performance is ‘Red Flag’]
The Shanghai Composite fell into bear market territory earlier this week, down 20% from one year ago, Yahoo Finance’s Breakout reports.
“The importance of Europe cannot be understated. The EU is China’s second largest export market, and arguably the biggest contributor to their economic slowdown. China’s exports to Europe plunged over 16% in July compared to last year,” according to the report.
In diversified ETFs, Vanguard MSCI Emerging Markets (NYSEArca: VWO) fell Thursday for the fourth straight session and is trading below its 50-day moving average.
“Economic data is going to be weak for a while and it’s not something very surprising,” Gaelle Blanchard, an emerging-markets strategist at Societe Generale, told Bloomberg News. “If we have positive steps that the market expects from the Federal Reserve and the European Central Bank, it could lead to a new wave of market optimism.”
iShares FTSE China 25
