China ETFs Strengthen on Growth Pledge

ETF Trends

After the unexpected weakness in the Chinese economy, China country-specific exchange traded funds have been rallying on the continued flow of easy money, and now, Beijing has promised to maintain a specific level of growth.

The iShares China Large-Cap ETF (FXI) rose 2.1% Tuesday. Over the past month, FXI has gained 5.9% but it is still down 14.3% year-to-date. [Good Entry Point for Unloved China ETFs?]

“The bottom line for economic growth is 7%, and this bottom line must not be crossed,” Premier Li Keqiang stated, Reuters reports.

China’s economy expanded 7.5% year-over-year in the April-June period, compared to the 7.7% gain in the first quarter and 7.9% in the fourth quarter of 2012. The government has also set a 7.5% target for 2013.

Li said that the “lower limit” will help stabilize economic growth and employment levels, whereas the “upper limit” will help limit inflation.

Analysts are hoping that China will begin moving toward stable growth.

“We reckon that he could introduce a small-scale fiscal expansion by tapping the central government coffer to support social housing, railway, environment related urban infrastructure such as sewage,” Lu Ting, an economist with Bank of America Merrill Lynch, said in a research note.

“China could introduce some kind of fiscal stimulus to help stabilize the economy,” Daphne Roth, head of Asia equity research at ABN Amro Private Bank, said in a Bloomberg article.

Moreover, with the markets expecting the Fed to maintain its accommodative measures, the easy liquidity is also fueling the resurgence in emerging market equities.

“While there’s a likelihood the Fed will start tapering monetary stimulus in September, we don’t expect the Fed to start raising rates until the end of 2014,” Roth added. “We remain overweight on equities.”

iShares China Large-Cap ETF

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For more information on China, visit our China category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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