China’s ETF Show Recovery, But Skeptics Abound

Like many emerging markets, China and its related exchange traded funds (ETFs) are showing signs of a recovery. But is the reported growth in China enough to keep the ball rolling?

The Shanghai Composite Index recently reached 3,008.15, its highest close since June 11, 2008, and gained 63% in the first half of the year, reports Zhang Shidong for Bloomberg. Wang Peng, Shanghai-based chief investment officer at First Trust Fund Management Co., expects listed companies to post positive earnings in the third or fourth quarter.

At least 140 people have been killed in protests in which rioters are clashing with police in western China, reports Edward Wong for The New York Times. If it continues to spread, could it jeopardize the country’s recovery?

In a government report, the Purchasing Mangers’ Index hit a seasonally adjusted 53.2 for June. Anything above the 50 level translates into an expansion. Trade and investment in housing are expected to boost China’s recovery by the start of 2010.

Not everyone believes the China will be quick to recover. The bulls have argued that the jump in shipping rates indicate a rise in commodity demand; thus, a revival of the world economy is at hand, remarks Claus Vogt for Money and Markets. But Vogt argues that a jump in Chinese commodity imports could just as well be due to  a buildup of strategic reserves by taking advantage of low prices that could be seen as a normal part of a typical inventory cycle, and Chinese corporations are hoarding commodities, speculating on a rise in future commodity prices.

• iShares FTSE/Xinhua China 25 Index (FXI): up 29.8% year-to-date

• SPDR S&P China (GXC): up 32.8% year-to-date

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