Growth Worries China Investors

The prospect of tighter credit policy has China ETF investors on the defensive.

The $8 billion FTSE China 25 Index Fund (FXI) is down over 9% from a high achieved in early November.  That compares to a 6% gain for the S&P 500 over the same time period.

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Last week’s report of higher than expected GDP growth is the latest news that indicates China’s attempts to control growth are not as effective as hoped.  China’s GDP year-over-year growth was 9.8% in the December-ending quarter and 10.3% for the full year 2010.  The DowJones fourth-quarter forecast was for 9.2% growth.  The larger than expected growth rate caused several China analysts to raise GDP growth forecasts for 2011 and predict a further tightening of credit including stricter enforcement of bank-lending quotas.

Top holdings for the large China exchange traded fund include China MobileChina Construction Bank,CNOOC Ltd and the Industrial and Commercial Bank of China.  The expense ratio for FXI is 0.73%.

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