By Kevin Grewal, Editorial Director at www.SmartStops.net
As inflationary concerns continue to loom in China, the nation's government is making moves to curb the rise in prices, which could potentially influence the iShares FTSE/Xinhua China 25 Index Fund (FXI), the Global X China Financials ETF (CHIX), the SPDR S&P China ETF (GXC) and the Guggenheim China All-Cap ETF (YAO).
In the month of October, the consumer price index in the world's second-largest economy rose to 4.4% year over year, driven primarily by a 10.1% rise in food prices. This increase in prices has resulted from an influx of money supply in the Chinese economy due to the nation's expansionary monetary policies, which enabled its banks to increase lending.
A devastating effect of this increase in prices could be a sharp uptick in the basic cost of living, which potentially could result in social unrest and mayhem. To prevent this from emerging, China's government is raising interest rates, implementing tighter control on bank lending, forcing banks to hold more capital reserves and allowing the yuan to appreciate faster.As China continues to take steps at curbing inflation, potential consequences could be limiting domestic output by producers, leading to a shortage in consumer goods and a decline in exports. This could put the brakes on China's overall economic growth, which could influence the aforementioned ETFs. iShares FTSE/Xinhua China 25 Index Fund, which allocates nearly 47.8% of its assets to the Chinese financial sector; Global X China Financials ETF, which is a sector specific play on the Chinese financial sector; SPDR S&P China ETF, which allocates 32.36% of its assets to financials and 7.44% to consumer discretionary; Guggenheim China All-Cap ETF, which allocates 33.7% of its assets to financials and nearly 5.5% to consumer discretionary. Written by Kevin Grewal in Houston.