Chinese Banks Insolvent? Avoid These ETFs

Here we are just a few days away from 2011 and one would think that at this point the problem regions for banks had pretty well been identified, namely Europe and the U.S. Who would have thought that China with its massive hoard of foreign currency reserves would see its banks in trouble? Brace yourselves, because Chinese banks could be "flirting with insolvency," as Barron's puts its. Harald Malmgren, manager of the the Malmgren Global fund, tells Barron's that the big issue facing Chinese financials is nonperforming loans, the result of the government ordered stimulus of 2008-09 that forced banks to lend massive amounts of cash. While insolvency for Chinese banks may seem like a stretch, there are several ETFs to avoid assuming Chinese financials come under pressure. 1) Global X China Financials ETF

: Just a year old, CHIX is the only ETF focusing exclusively on China-based financial services firms, so it's an obvious choice for this list. 2) iShares FTSE/Xinhua China 25 Index Fund

: The most popular China ETF by assets and trading volume, FXI allocates over 47% of its weight to financials, which is a bad thing assuming Malmgren's outlook proves accurate. 3) SPDR S&P China ETF

: GXC kind of flies under the radar as far as China ETFs go, but with an allocation of 34% to financials, if Chinese banks implode, GXC is likely to become popular among short-sellers in a hurry.