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China Stimulus? These ETFs Might Benefit (FXI, ECH, MOO)

March 12, 2012 1:13 pm
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China Stimulus? These ETFs Might Benefit (FXI, ECH, MOO)

Last week, China issued a 2012 GDP growth forecast of 7.5%, the lowest growth forecast from the world’s second-largest economy in several years. The country’s economic growth slowed in January and February and China reported a $31.5 billion February trade deficit, a rarity to say the least from this export-driven economic power.

The recent spate of Chinese economic data has investors taking a cautious approach to Chinese equities, but the data points have also prompted speculation Beijing may act to implement stimulus measures to spur economic growth later this year.

At least on economist is forecasting a Chinese interest rate cut this month and reserve requirement reduction next month, according to Bloomberg News.

Assuming policymakers act to jolt the Chinese economy, there are scores of ETFs that have the potential to benefit and not all are China-specific funds. Here are a few to consider.

iShares MSCI Chile Investable Market Index Fund (NYSE: ECH)
If ECH is vulnerable to slower Chinese growth then the ETF is a logical winner under a stimulus scenario.

When it comes to China and ECH perception is reality. Even though the ETF isn’t the copper proxy some have made it out to be, a Chinese stimulus package would probably mean good things for copper bulls, in turn benefiting the lone Chile ETF.

Market Vectors Vietnam ETF (NYSE: VNM)
The Market Vectors Vietnam ETF, one of the best performers among non-leveraged emerging markets ETFs this year, has shown some faint signs of weakness in March as the ETF has struggled to keep its head above the $20 area. It’s possible investors are missing out on the fact that Vietnam recently lowered interest rates and that the country seems to be doing a far better job damping out inflation than it has in recent years.

As for VNM as a backdoor China play, China is the top destination for Vietnamese exports, indicating the Southeast Asian country is a potential winner thanks to any Chinese stimulus efforts.

Guggenheim China Small-Cap ETF (NYSE: HAO)
Active followers of China-specific ETFs know this much: When these ETFs are in favor, HAO is usually a much better bet than the iShares FTSE China 25 Index Fund (NYSE: FXI), the largest of all China ETFs. HAO has left FXI in its dust this year and would be a buy above $24. That technical resistance could fall without the help of stimulus efforts and if China cuts rates and/or lowers reserve requirements, all the better for HAO.

Market Vectors Agribusiness ETF (NYSE: MOO)
Forget for a moment the ridiculous theory that people needing to eat justifies being long the Market Vectors Agribusiness ETF. Put into terms of the Chinese need to eat. That’s a way of saying that over the past five year, MOO and FXI have shared a fairly intimate correlation. What impact a Chinese stimulus plan has on agriculture commodities remains to be seen, but saying MOO is a winner under that scenario isn’t going out on a limb. Just look at the five-year charts of MOO and FXI. The correlation isn’t 100%, but it’s also hard to ignore.

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