China's Q2 GDP Highest in 12 Years, Inflation Climbs

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Includes: CAF, FXI
by: Steven Towns

China's statistics bureau reported Q2 GDP grew 11.9%, topping every estimate in a Bloomberg poll. Inflation rose 4.4%, the most since Sept. 2004, and exceeded the central bank's 3% target for the fourth straight month. Despite renewed concerns of rate hikes, stocks were mixed and held up much better than in the past. The Shanghai Composite ended lower by 0.44% to 3,912.94. A-shares gained 0.25% in Shenzhen, but fell 0.44% in Shanghai. B-shares meanwhile, rose 0.46% Shanghai, while falling 0.30% in Shenzhen. The yuan strengthened to its highest level against the U.S. dollar since the ending of its peg in July 2005. High food prices are blamed for the rise in inflation, as China faces a shortage of pigs and also faces rising international grain prices. A spokesman for the statistics bureau commented, "China will continue to strengthen and improve macro- economic controls in the second half of this year'' in order to contain lending and the money supply. Goldman Sachs upward revised its 2007 GDP forecast to 12.3% from 10.8% and expects two more 0.27% rate hikes this year.

Sources: Bloomberg, Associated Press
Commentary: GDP Index Weighting For China Would Likely BackfireGrowing Disconnect: Market-cap Weighted Indexes and the GDP Share of ChinaAs Long As China's Excess Money Supply Remains, Keep Buying
Stocks/ETFs to watch: iShares Lehman 1-3 YR Treasury Bond (NYSEARCA:SHY), iShares Lehman 7-10 YR Treasury Bond (NYSEARCA:IEF), iShares Lehman 20+ YR Treasury Bond (NYSEARCA:TLT). Currency funds: PowerShares DB G10 Currency Harvest Fund (NYSE:DBV), Euro Currency Trust (NYSEARCA:FXE), CurrencyShares Japanese Yen Trust (NYSE:FXY). China funds: Morgan Stanley China A (NYSE:CAF), iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI), PowerShares Golden Dragon Halter USX China Portfolio (NASDAQ:PGJ)

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