Fiscal Cliff: Will A Deal Boost Chinese Manufacturing? (CHII)

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December 12, 2012 3:14pm NYSE:CHII

Steven Orlowski: While President Obama and Speaker Boehner negotiate a deal to resolve the looming “fiscal cliff”, the financial world is waiting and speculating madly.

One such speculation is that Chinese manufacturing will be stimulated by a resolution of the problem. US consumers, it is said, are holding back consumption because of the unknown impact of the fiscal cliff.  If this is true, then a resolution of the problem could indeed boost manufacturing in China.

Some recent statistics like last week’s PMI (Purchasing Managers Index) have strengthened the argument that the Chinese economy has bottomed.

However some manufacturing jobs are leaving China for places like Bangladesh, Mexico and even the US.  This knowledge has forced some analysts to come to the opposite conclusion regarding the Chinese economic recovery.  It will be China’s ability to become more self-sufficient, selling to its own population rather than exporting that will determine the validity and pace of recovery.

One ETF that should benefit from a recovery in China is CHII, the Global X China Industrials ETF (NYSEARCA:CHII).  Frankly, if CHII can be used as a proxy for the recovery, the recovery may in fact be over a year old.

The above chart takes us back to October 2011, when CHII bottomed.  CHII rose rapidly from about $8.00 per share to above $13.00 per share by March 2012.  Subsequent weakness in the Chinese economy and around the globe pushed CHII back down to about $9.50 per share this past September. From there it has again risen to trade at a recent high near $12.50 per share.  Volatility not withstanding this chart is suggestive of further upside to come.

The three-year chart suggests how high CHII might go.  It traded above $18.00 per share in 2010.  A return to that level could provide investors with 40% upside if the Chinese manufacturing picture continues to improve.  Of course there are multiple impediments to such success, not least of which is the United States.

Written By Steven Orlowski From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

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