An exchange traded fund indexed to Chinese stocks is threatening to fall to a new 52-week low despite persistent rumors that China will be one to bail Europe out of its debt mess.
The iShares FTSE China 25 Index Fund (NYSEARCA:FXI) is down 14% over the past three months. Weakness in Chinese stocks does not bode well because they are seen as a leading indicator for the global economy.
Major Chinese stocks continued to drop on news that the central bank sold more than $3.13 billion in bills to major lenders, which diminished liquidity from the markets, according to Bloomberg. The Shanghai Composite Index declined 1.2% last week and currently sits at its lowest level since September 6. Asian stocks were mostly down on speculation that Greece might default.
“Although there’s a small risk of a hard landing for China’s economy, a possible rebound in inflation and the impact of worsening European debt crisis on the global economy still remain the biggest concern to investors,” Wu Kan, a fund manager at Dazhong Insurance Co., commented. “There’s also no sign that policies will be loosened in the short term. Stocks might test a new low.”
Due to growing concerns that tighter monetary policies will reduce commodities demand, a measure of 48 material stocks dropped 1.9% Tuesday.
Italian officials are courting China in an attempt to garner the backing of the Chinese government through “significant” purchases of Italian bonds and investments in other areas, reports Guy Dinmore for Financial Times. According to an Italian official, China holds around 4% of Italy’s current debt.
iShares FTSE China 25 Index Fund (FXI)
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Max Chen contributed to this article.