China ETF Battle: FXI vs. FXP

The battle between China ETFs such as (FXI) and the ProShares Ultra Inverse China ETF (FXP) has been an interesting one with wide swings during the past year. FXI is up about 40% from its low but FXP is still substantially ahead on a year-to-date basis. Which approach will win out in 2009?

Chinese economic growth is declining rapidly. Exports fell in November for the first time in almost seven years. With demand in many of its main markets slowing sharply, Chinese exports declined 2.2 per cent from a year earlier. Imports also fell 17.9% from a year earlier, according to Chinese customs figures, prompting the government to announce plans to further boost the economy.

About 2/3 of toy exporters have already gone bust this year and orders from foreign buyers and overall orders from foreign buyers have fallen off a cliff. More importantly, investment, which makes up about 50% of China’s GDP is declining. Foreigners are investing and buying less: November foreign direct investment fell by a third from the previous year. Deflation is even a possibility, with annual producer price inflation plunging to 2% in November, less than one-third the October reading.

Despite all this bad news, China bulls have taken heart from beaten down valuations and the recent actions by China’s mandarins. Interest rates and bank reserve requirements have been cut, infrastructure spending announced export tax rebates and China’s currency has even come back a bit in a bid to help exporters. China’s chief worry is about unemployment, capital flight, political turmoil and deflation. The near-term headline news will not be pretty.

Comments

[notsosmart:]

russia or china? both dictatorshps that can move the goalposts.its hard enough to hold on to your money here with your own crooks.do you really want to go there?

2008 Dec 12 11:05 AM

[huangjin:]

FXI beats FXP as of 12/11...

2008 Dec 12 12:36 PM

[Giorgio:]

LONG FXP @ $33

2008 Dec 12 03:51 PM

[HaavBline:]

I found no 'Alpha' in this article at all.

Did not even mention FXP is double short of FXI, not just inverse.

2008 Dec 13 12:17 AM