China ETFs For A Rebound

Includes: FXI, GXC, MCHI, PEK
by: Tom Lydon

China focused stocks and exchange traded funds have not been great performers in 2013 but investors should not count them out completely. The rest of the year is looking promising for China's economy.

China's first quarter GDP came in at 7.7%, not far from the fourth quarter number at 7.9%, reports S&P Capital IQ. Most of the drop is a result of the tighter lending that banks are implementing for real estate and "non-productive" sectors.

"We believe China's GDP growth is likely to pick up in the coming quarters as the first quarter is seasonally weaker for capital formation," Lorraine Tan of S&P Capital IQ-Asia said, and, "as long as the U.S. recovery remains en route."

The slower expansion in the first quarter is "normal" as China sacrifices economic growth to make structural reforms, People's Bank of China Governor Zhou Xiaochuan said in an interview at a meeting of the International Monetary Fund in Washington April 20. Bloomberg News reports that the iShares FTSE China Large-Cap ETF (NYSEARCA:FXI) has experienced outflows of $256 million this month, after losing $824 million in March, the highest level since March. FXI is down 16.5% this year.

The fiscal stimulus that was set into action during the third quarter of 2012 has not materialized, and most spending plans were unable to gain financing. China's industrial output has slowed in March to 8.9%, compared to 9.9% in January and February.

S&P Capital gives China a positive outlook for the rest of 2013, with seasonal buying a big support for near-future commodity buying. The ratings company is expecting the Shanghai stock exchange to rise about 28% by the end of 2013.

The iShares MSCI China Index Fund (NYSEARCA:MCHI) is a diversified play on China's economy, but is down about 10% over the first three months of 2013. Other China focused ETFs such as SPDR S&P China ETF (NYSEARCA:GXC) and Market Vectors China A-Shares ETF (NYSEARCA:PEK) are down 10% and 9%, respectively, for the quarter.

iShares FTSE China Large-Cap ETF

Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.