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China And Europe

|Includes:CYB, DSUM, FXCH, iShares China Large-Cap ETF (FXI), GXC, PGJ

China's direct investment into Europe tripled to $10B in 2011, according to a study by the Rhodium Group that projects that Chinese companies will increasingly spend in Europe. In fact, Chinese companies could spend as much as $500B a year in Europe by 2020, a phenomenon which is possible due to the confluence of three major factors:

  • Europe's sovereign debt crisis: as Greece ponders a potential withdrawal from the Eurozone and the situation in Spain steadily grows worse, Europe has become one of the most attractive markets for Chinese companies.
  • Europe also has significant assets that Chinese companies value greatly: as noted by the FT article, European technology, brands, and high-end manufacturing are some of the major drawing points of Chinese FDI to Europe
  • The Chinese government is also encouraging Chinese companies to increase their offshore investments as a way of making them more competitive on the global arena and diversifying the country's foreign exchange reserves.

As Chinese companies are spurred on to invest in valuable European assets at the behest of the Chinese government, expect much more FDI pouring into Europe from China. However, it is important to note that this FDI probably will not have a significant impact on the European sovereign debt crisis. Chinese companies will most likely stay away from toxic assets and the sovereign debt of the PIGS/PIIGS nations.

Stocks: FXI, GXC, PGJ, CYB, DSUM, FXCH