China has long been considered one of the world's most important
economies, thanks to its massive size, tremendous potential, and
impressive growth rates over the last two decades. With a
population that is rapidly urbanizing, many predict the Chinese
economy will be the largest in the world within just a decade,
potentially knocking the U.S. from the number one spot that it has
held for so long.
While China's potential policy shifts and economic potential
dominated the headlines for much of last year, the end of 2010
focused on a different corner of the globe as the eurozone
struggled with looming debt crises that struck several nations.
Countries like Greece and Ireland have already received bailouts,
and others such as Spain and Portugal are on the brink of needing
international intervention to stay afloat. While many have looked
to the EU or the IMF to help these indebted nations, few have
considered the possibility of other countries, with far more sound
balance sheets, stepping in to help.
announced a deal
with Spain valued at approximately $7.3 billion that will allocate
much-needed cash to over 16 market sectors in the nation, with the
most valuable acquisition coming from the $7.1 billion of Repsol (
) oil assets purchased by China Petroleum & Chemical
). Other major purchases included meat products, olive oil, wine,
and ham from Spain.
Chinese Vice Premier Li Keqiang stated: "China is a long-term
and responsible investor in the Spanish and European financial
markets, and it has confidence and great interest in the Spanish
market," suggesting that perhaps Chinese investment in troubled
euro economies is only just beginning.
Li also stated that China had intentions to purchase more
Spanish government bonds if the market conditions were right,
effectively adding to the already 10% stake in Spain's debt that
China currently owns. But while China has expressed monetary
interest in Spain, it also holds the EU as a whole in high regard
as an investment destination; the bloc of nations is China's
biggest trading partner.
Already, China has more than $2.6 trillion invested in non-U.S.
dollar-denominated assets, the highest in the world, and it clearly
has plans to expand that figure in order to not only help the
country further diversify away from U.S. dollars but to cozy up
with its biggest trading partner as well. Late last year, a
Portuguese newspaper reported that China had plans to invest in
Portuguese bonds to help the nation refinance its massive debts,
and China has expressed interest in buying Greek bonds as well.
While China's motives may be more political than economic, its
stake in the EU is clearly growing, and Beijing has given
indications that investment in the eurozone will continue. Below,
we outline three ETFs that could benefit from China's growing
investment in the eurozone.
Global X China Energy ETF (
This ETF tracks an index that is designed to reflect the
performance of the energy sector in China. Top holdings of this
fund include CNOOC (
) (11.8%), and China Petroleum & Chemical Corporation (11.1%).
This fund could give investors a pathway to investing in the
various deals China seems to be making in the energy space. In
particular, the $7.1 billion purchase of oil assets by China
Petroleum could have a significant impact on CHIE, as China expands
its European oil operations and gains yet another market to develop
energy supplies to fuel its red hot economy.
iShares MSCI Spain Index Fund (
EWP measures the performance of the Spanish equity market, which
had a rough 2010: This fund has lost nearly 30% over the last 52
weeks. This ETF focuses its holdings in the financials (43.7%),
telecom (18.4%), and industrial materials (12.5%) sectors, with the
majority of its holdings coming from giant and large-cap companies.
Repsol accounts for nearly 5% of the ETF, giving it direct ties to
the recent China-Spain deal. Beyond ties to this recent deal,
China's explicit willingness to invest in and help Spain could turn
things around for this fund as well.
iShares MSCI EMU Index Fund (EZU)
This ETF tracks the MSCI EMU Index, which measures the
performance of equity markets of the EMU member countries: Those
members of the European Union who have adopted the euro as their
currency. From a sector standpoint, this fund primarily dedicates
its assets to financials (22.2%), industrial materials (16.7%), and
consumer goods (16%). As far as countries are concerned, EZU holds
France (31.2%), Germany (26.2%) and Spain (12.2%) in its top three
spots. This fund reflects the eurozone as a whole, which will
benefit from any single country climbing its way out of debt, so
EZU could be a more general play on the Chinese foreign investment
and its long-term impact on the zone.
No positions at time of writing.
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