A report issued August 10 by Barclay's economists Jian Chang,
Yiping Huang, and Steven Lingxiu Yang suggests the slowdown in the
Chinese economy may be over and that growth will accelerate during
the remainder of 2012.
[caption id="attachment_70237" align="alignright" width="300"
caption="Skyscrapers protrude from bustling housing in Shanghai,
The economists' full-year forecast for Chinese economy growth
was lowered to 7.9% from 8.1%. But that number includes expected
growth rates of 7.7% and 8.1% for the third and fourth quarter
respectively. Both numbers are an improvement from the 7.6% growth
in the second quarter.
Those numbers are well off past double-digit growth rates, but
as with any statistic there must be a bottom before resuming a rate
of increase. Problems in Europe, China's biggest export market,
continue to drag on growth. In addition to the increased GDP for
the third and fourth quarters Barclay's expects to soon see a rate
cut to stimulate the Chinese economy.
A look at two China ETFs may shed some light on the situation
from a trader's perspective. Assuming that the slowdown is halted
in the Chinese economy, or is at least really slowing down, the
charts may reveal some reinforcing technical perspective. The first
), a very commonly traded security with average daily volume of
more than 17 million shares. FXI also has a dividend yield of
2.66%, besting the SPDR S&P 500 ETF (
) which has a dividend yield of 1.92%.
Trading at about $35 per share, FXI is a compelling
consideration -- the same price as in May 2009. By contrast, SPY is
trading at about $140 per share, an increase of approximately 60%
since may 2009.
Gauging the health of a country's economy based upon the chart
alone it would be universally assumed that the United States has
been trucking along with significant growth while the Chinese
economy is a disaster. The truth is quite different. China has
slowed dramatically but by many measures, including Jiang's of
Barclay's, it is still growing strongly. The U.S. however is barely
stumbling along at less than 2% GDP growth, with many prognoses for
the economy to stall or even contract.
The short term chart for FXI exhibits many of the same
characteristics as the longer term chart.
It appears that price is consolidating and the decline has been
quite measured. The higher lows are establishing a support level in
the low $30 range which appears to be stabilizing. FXI is likely to
trade in a range, perhaps between $30 and $38, until such time that
the fundamentals justify a meaningful push higher.
The other ETF is the Claymore/AlphaShares China Small Cap ETF (
). The chart above of HAO is from its inception in early 2008. The
chart is very similar to FXI. Lots of volatility and negative
returns for several years leading up to today. As with FXI, this
looks like the chart of a dying country, not one expected to be a
primary driver of global economic activity.
The two year chart also mirrors FXI. HAO has definitely
exhibited greater volatility and the consolidation to today has
narrowed the range much more tightly than FXI. But small cap stocks
and funds are expected to display greater volatility, which
translates into greater short term gains and losses. Small cap
stocks historically outperform large cap stocks over the long haul.
If the Chinese economy is truly leveling off, which would
presumably presage future growth, then an ETF like HAO is a must