Slower Chinese Growth Could Plague These ETFs (FXI, EWZ, KOL)
China's 2012 growth forecast of 7.5% while still impressive, is also the country's lowest growth target in eight years and the impact on global stocks has been predictable. ETFs tracking markets from New York to Shanghai to Sao Paulo are getting decked today.
Glum performances from some marquee country ETFs underscore the importance of China's weight on the global economic stage. As most investors by now know, shocks courtesy of China are not limited to the Asia Pacific region. Those shocks are felt all over the world and that's not surprising given that China is the world's second-largest economy and largest exporter.
But China is also a voracious importer of dozens of raw materials and agriculture commodities, among other fare, making it a critical end market for dozens of products produced by other countries. Translation: Don't think for a minute that iShares FTSE China 25 Index Fund (NYSE: FXI) will be the only ETF suffering if China somehow misses its 7.5% growth target. Here are some others that might feel a pinch due to the new GDP estimate out of Beijing.
iShares MSCI Brazil Index Fund (NYSE: EWZ) The iShares MSCI Brazil Index Fund is trading lower by almost 2% and a lot of that decline can be blamed on economists forecasting Brazilian inflation of 5.2% in 2013, well above the central bank's target rate of 4.5%.
And some of EWZ's Monday woes can be tied to the China GDP story. China replaced the U.S. as Brazil's top trading partner almost three years ago and is major buyer of Brazilian raw materials such as iron ore. The correlation between EWZ and FXI over the past two years is astounding as these two ETFs have basically moved in lockstep with each other.
iShares MSCI Chile Investable Market Index Fund (NYSE: ECH) As it did with Brazil, China surpassed the U.S. as Chile's top trading partner in 2009. In this case, we're talking about copper. It has already been proven that copper isn't always the primary catalyst to move ECH. However, perception can be reality and if Chinese growth is slowing, that means lower copper demand and traders are apt to take out some of that aggression on ECH.
IndexIQ Australia Small Cap ETF (NYSE: KROO) China is Australia's largest two-way trading partner and the former sure loves to get its hands on the latter's coal. Asian demand for liquefied natural gas is also the primary reason why Western oil majors are investing so heavily in Australia's LNG industry.
KROO's allocations to Aussie energy and materials names can be a source of attraction. It can also make the ETF vulnerable if China cuts back on Australian commodities imports.
Market Vectors Coal ETF (NYSE: KOL) Speaking of coal, even though developed countries such as the Australia, Germany and the U.S. are major consumers of coal, coal's fortunes have been more intimately linked to China over the past few years. KOL has a tendency to outperform FXI when things are going well and then trails the main China ETF in weak or sideways markets. KOL has shown signs of weakness this year and concerns about China have already forced the ETF below critical support at $35. KOL is now technically vulnerable and subject to more downside thanks to China's GDP forecast.
Global X FTSE ASEAN 40 ETF (NYSE: ASEA) This is an ETF one wants to like but sometimes there are hurdles that prevent the relationship from taking on a deeper meaning. The ASEAN countries' three largest trading partners are China, the European Union and Japan. In other words, ASEA really needs China to come through for its constituent countries, because the EU and Japan are far from reliable. Still, ASEA's worth a look above $16.25.
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