Why China's ETFs Could Languish

China, a country known for its massive exporting capabilities, is starting to experience less demand from abroad, which may translate to a weaker economy and ETFs.

Fewer Jobs. Chinese officials have already stated that millions of workers have lost their jobs because there isn’t enough work, and some are quitting early to get that last paycheck in anticipation of widespread bankruptcies, reports Keith Bradsher for The New York Times.

Falling Exports and Imports. Exports were 2.8% smaller in December compared to the same month a year earlier and imports dropped 21.3%. Widespread weakness in global demand is said to be the cause of contracting Chinese exports. China’s trade gap is growing because of its rapid decline in imports versus sales of exports. Analysts predict Chinese exports will continue to shrink and China would eventually show no growth for 2009 compared to 2008.

• iShares FTSE/Xinhua China 25 Index (FXI): down 16.8% in the last week

The People’s Bank of China has reported that it is holding $1.9 trillion in foreign reserves, with an increase of $40.5 billion in the fourth quarter, which is indicative of China’s continuing willingness to buy U.S. Treasurys and other government debt, writes Andrew Batson for The Wall Street Journal.

The threat of capital outflows has kept China from depreciating its currency despite pressures from exporters who are languishing from decreased demand and want a cheaper yuan. Capital outflows in the fourth quarter are estimated to be around $70 billion. The central bank has continued to keep the yuan at around 6.85 to the U.S. dollar.

• WisdomTree Dreyfus Chinese Yuan (CYB): up 0.4% in the last week

Comments

[donzelion:]

In terms of "languishing" - it's odd to focus on short-term technical indicators to look for long term trends and developments.

Long-term fundamentals that will hurt China include: (1) lack of substantive legal reform (great strides in cosmetic reform though), (2) lack of transparency (a million public relations professionals are not the same as journalists), (3) rife corruption, and (4) too many China boosters still in business while their China funds short the country.

China certainly has a wondrous future ahead - but it's naive to believe that Chinese equities permit one to participate in that future.

Jan 15 10:10 AM

[searcher:]

Investing in China is close to 'black box' investing. Numbers can be trusted even less from there than from others of dubious credibility. 'Equity' is an illusion even from a 'formal' aspect, much less so that of any anticipated realization.

Jan 15 12:02 PM

[Paul Killinger:]

What is it that's different about investing in China than investing in the U.S. in outfits like Bernie's? At least they shoot their crooks when they find out they're cooking the books. (My own thinking is this helps limit their temerity.)

Jan 15 12:33 PM

[Paul Killinger:]

In other words, I believe the LONGER China remains like the China it is right now, the BETTER the investment it is. (Indeed, It reminds me quite a bit of the America I grew up in.)

Jan 15 12:49 PM

[Andreas:]

equilor.hu/en 21 global markets 1 account

Apr 02 01:56 PM