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With PMI Green, China Back On Investors' Radar (FXI)

December 14, 2012 12:17 PM EST
Shares on China’s restricted Shanghai Composite reached their highest level since August following the release of HSBC's preliminary Purchasing Managers Index for December. The index read 50.9, a 14-month high, and above the critical 50 level for the second month in a row.

Shares in Hong Kong had a positive reaction, and the popular China ETF, iShares FTSE China 25 Index Fund (NYSE: FXI), gained 1.6 percent. The bullish data has many weary China investors wondering if today's news is a signal to bet big on Beijing in 2013.

In the view of analysts at Bank of America Merrill Lynch, China's recovery began last month.

"China's short-term growth momentum is already on the upturn. Year-on-year GDP growth is likely to rebound to 7.8% in 4Q12 and peak at 8.3% in 1H13," the bank said in a recent report discussing its 2013 global outlook.

The turnaround in growth could be a boon for investors who get in on the bottom floor of a recovery in China-related equities. In general, China stocks trade significantly below pre-2008 crisis levels. For example, the Hang Seng Index topped out at 31,350 in 2007, and now trades at just 22,600, 28 percent lower. Meanwhile, China’s Shanghai index has been beaten with impunity. It dropped from pre-crisis highs of 6000 to near 2000, and despite a December rally that is its best month in what seems like ages, it currently trades at only 2150.

China's once-in-a-decade leadership change is safely in place, and Europe has stabilized. The U.S. is growing slightly and China PMI is back in positive territory, suggesting a pickup in manufacturing. Investors are also prepared for more stimulus measures from the government, which appears imminent.

In summary, China is clearly drawing investor's interest again, and this time it may even be well placed.

iShares FTSE China 25 Index Fund (NYSE: FXI) is higher by 1.8 percent intraday on Friday.


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