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By Market News Video Staff, Monday, March 14, 11:28 AM ET
by Max Blythe
In something of a surprise to the international community, China posted a monthly trade deficit for February that reached $7.3 billion. While China’s trade deficit, its first since March 2010, can in some part can be explained by raising crude prices, there are other factors at work that could spell a paradigm shift for the global economy, given China’s increasingly important role in international trade.
Earlier this month, Chinese authorities approved the country’s 12th five-year plan which foresaw annual growth at 7.0% for through 2015. In addition to focusing on education and clean energy, China is also seeking to shift from export-led growth to more domestic consumption supported by a growing service-sector economy. China’s reasoning behind the reform is that its exports can no longer count on rapacious external demand and that China must now look inward to support its continued and rapid economic expansion. The move towards imports and increased consumption could be a boon for Chinese ETFs and select US exporters.
One of the broadest China-based ETFs available to US investors is the Guggenheim China Small Cap ETF (AMEX:HAO), which tries to mirror the AlphaShares China Small Cap Index. The fund contains equity in over 200 smaller Chinese firms and has recently underperformed, gaining only 5.8% in the past year. In terms of Chinese blue-chips, Claymore AlphaShares China All Cap ETF gives investor exposure heavyweights such as leading search engine and Google’s rival in China Baidu.com (NASDAQ:BIDU) and cellular giant China Mobile (NYSE:CHL). The ETF allocates 33.7% of its assets to financials and nearly 5.5% to consumer discretionary stocks. Claymore is up 10.1% in the past year.
In terms of direct exposure to the Chinese consumer market, the Global X China Consumer ETF (AMEX:CHIQ) is the only fund available to US investors. The fund, which seeks to mirror the Solactive China Consumer Index, has underperformed as of late, losing 4.6% since the beginning of the year. Chinese monetary tightening and increased inflation are partial to blame, however, the recently announced five-year plan could potentially reverse the ETF’s fortunes.
In particular and of note, US poultry producers will stand to benefit as increasingly prosperous Chinese consumers “upshift” their consumption patterns towards more meats and poultry products. In 2008 alone, China imported $722 million in US chicken products, a figure that is set to grow further in 2011. Roughly half of 2008 exports by dollar value were chicken feet, or “phoenix talons,” considered a delicacy in southern China and worth $0.60 - $0.80 per pound locally but largely discarded as offal in the US. Despite a Chinese tariff hike for US poultry products, Pilgrim’s Pride (NYSE:PPC) and Tyson Food (NYSE:TSN), both major US poultry exporters to China, have entered into separate negotiations with the Chinese government and plan on expanding their exports to the PRC.
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