By Carl Delfeld of
Chartwell ETF
The
battle between China ETFs such as (FXI) and the ProShares Ultra Inverse
China ETF (FXP) has been an interesting one with wide swings during the past
year. FXI is up about 40% from its low but FXP is still substantially ahead on
a year-to-date basis. Which approach will win out in 2009?
Chinese economic
growth is declining rapidly. Exports fell in November for the first time in
almost seven years. With demand in many of its main markets slowing sharply,
Chinese exports declined 2.2 per cent from a year earlier. Imports also fell
17.9% from a year earlier, according to Chinese customs figures, prompting the
government to announce plans to further boost the economy.
About 2/3 of toy
exporters have already gone bust this year and orders from foreign buyers and
overall orders from foreign buyers have fallen off a cliff. More
importantly, investment, which makes up about 50% of China’s GDP is
declining. Foreigners are investing and buying less: November foreign
direct investment fell by a third from the previous year. Deflation is even a
possibility, with annual producer price inflation plunging to 2% in November,
less than one-third the October reading.
Despite all this bad
news, China bulls have taken heart from beaten down valuations and the recent
actions by China’s mandarins. Interest rates and bank reserve requirements have
been cut, infrastructure spending announced export tax rebates and China’s
currency has even come back a bit in a bid to help exporters. China’s
chief worry is about unemployment, capital flight, political turmoil and
deflation. The near-term headline news will not be pretty.
Do you have a China
and Asian strategy for 2009? Join Chartwell ETF
today and receive some independent intelligence.
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