The abating inflationary reading in China is signaling potential weakness in the world’s second-largest economy. In response, the government could increase stimulus measures to promote growth and potentially stir up related country-specific exchange traded funds.
The consumer price index increased a lower-than-expected 2.3% in June year-over-year, compared to average estimates for a 2.4% rise and down from 2.5% in May, Reuters reports. Meanwhile, the producer price index dropped 1.1%, its 28th consecutive month of declines, reflecting tepid demand in the domestic economy.
“The weak inflation data leaves more scope for Beijing to step up use of targeted measures and even opens the opportunity window for blanket easing policy, such as an interest-rate cut, to support economic growth,” Wang Jin, an analyst at Guotai Junan Securities, said in the article.
Economists anticipate the government will implement new stimulus measures in the months ahead to hit the target 7.5% growth target.
“Subdued inflation means monetary policy will have plenty of room to ease further over the coming months,” Julia R Wang, an economist at HSBC, said. “We think the central bank will likely continue to do so in a targeted manner, provided that economic activity continues to show improvement.”
Some observers are looking for aggressive steps like rate cuts or lower bank reserve requirements, while others believe Beijing will continue with its micro stimulus measures.
“We expect Beijing to continue rolling out a slew of small-scale measures to deliver the around 7.5 percent annual growth target,” Ting Lu, an economist at Bank of America Merrill Lynch, said.
Investors can track the Chinese markets through broad options like the iShares China Large-Cap ETF (NYSEArca: FXI) and SPDR S&P China ETF (NYSEArca: GXC). The China funds lean toward financial sector stocks, with FXI allocating 53.3% of its portfolio to financials and GXC including 29.8% in the sector. [Big China ETFs Rally, but Investors Hardly Notice]
Alternatively, investors can focus on a domestic play with the burgeoning consumer sector. The Global X China Consumer ETF (NYSEArca: CHIQ) includes a 64.4% weight toward consumer discretionary and 29.9% in consumer staples.
Furthermore, we can now directly access Chinese stocks through China A-Shares ETFs, like the db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR), KraneShares Bosera MSCI China A ETF (NYSEArca: KBA) and PowerShares China A-Share Portfolio (NYSEArca: CHNA). Unlike other China ETFs, these A-Shares ETFs track companies listed in China’s stock exchange, whereas the other options track companies listed on Hong Kong or U.S. exchanges. [A-Shares ETFs in Focus After MSCI Rebuffs EM Promotion]
For more information on China, visit our China category.