Market Overview

China Stimulus Should Boost These ETFs

The Federal Reserve, the European Central Bank and the People's Bank of China all share something in common beyond the fact that all three are among the most important central banks in the world. Investors are hanging on every word from these giants on monetary policy with the hopes that one or all will engage in some form of increased stimulus sooner than later.

The PBOC, already with a reputation for an effective round of stimulus launched during the global financial crisis, could steal the ECB's and the Fed's thunder by being the first to act. Speculation is growing that the PBOC is poised to act, but Chinese policymakers have already signaled any new round of easing will not be on par with what was seen during the financial crisis.

For investors looking to China to lift the clouds of slowed growth hanging over emerging markets, any stimulus would be appreciated. The International Monetary Fund expects China's GDP to grow eight percent this year while the the country's internal forecasts put the number around 7.5 percent.

Conversely, there are some that believe that China is heading toward a hard landing that will resemble the growth seen in late 2008 and 2009. Perhaps the PBOC's hand is forced and stimulus is necessary. That might be a good thing for these ETFs.

Global X China Consumer ETF (NYSE: CHIQ) The Global X China Consumer ETF has at least one feather in its cap this year: It has easily outpaced the far larger iShares FTSE China 25 Index Fund (NYSE: FXI).

There is more worth noting about CHIQ. While investors have acknowledged the validity of the emerging markets consumer theme, not all ETFs representing this theme have been a success. CHIQ has, having passed the much-ballyhooed $100 million in assets under management. Actually, the ETF has over $109 million in AUM.

With Chinese policymakers looking to boost internal consumption while reducing the country's dependence on exports, CHIQ should benefit right away should a massive stimulus program be announced. A move above $13 confirms a breakout for this ETF.

EGShares China Infrastructure ETF (NYSE: CHXX) Perhaps even more so than the consumer, the emerging markets theme that has drawn more acclaim delivered more frustration to investors is infrastructure. From Rio de Janeiro to Shanghai to Bangalore, governments were supposed to prioritize funds to invest in infrastructure.

Some have not delivered on that front, but China has. In fact, China has been criticized for doing too much, creating "ghost cities" with unoccupied buildings and unused roads along the way. Criticism aside, China knows it can use infrastructure spending to prop up the economy and that explains why railway spending is expected to increase 16 percent in 2012, according to the Wall Street Journal.

The rub with CHXX is this: Investors are taking a cautious approach to this ETF. Despite the fact that China has proven it will spend on infrastructure, comparable ETFs tracking Brazil and the infrastructure disappointment that is India have easily outperformed CHXX this year.

Guggenheim China Small Cap-ETF (NYSE: HAO) The Guggenheim China Small-Cap ETF has struggled this year, having lost 1.2 percent, but this fund does offer exposure to sectors that should benefit in the event a Chinese stimulus package comes to pass. Industrial and materials names combine for over 41 percent of the fund's weight, implying HAO has some exposure to increased infrastructure spending.

Additionally, consumer discretionary and staples stocks combine for nearly 24 percent of HAO's weight. That could put HAO in prime position to get some benefit from China's efforts to engineer increased internal consumption.

For more on emerging markets ETFs, click here.

Posted-In: News Sector ETFs Short Ideas Specialty ETFs Emerging Market ETFs Events Global Economics Best of Benzinga

 

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