5 ETFs to Trade China’s Bank Bubble

Focus: ETFs

Dire consequences could result from an impending Chinese credit crisis, writes Stoyan Bojinov of ETFdb.com, a development that would make these five ETFs compelling buys for traders.

After starting out 2012 with a bang, economic uncertainties are once again creeping in from both sides of the Atlantic and equity markets around the globe appear to be losing steam and heading lower and back towards where they started off the year.

With Eurozone debt drama back in the spotlight, investors have seemingly brushed aside all other financial news. Perhaps one of the most overlooked developments is the mountain of debt that has been building up in China, leading many to worry that the Asian economic bellwether could soon face a financial crisis of its own. 

Infrastructure spending in China over the past few years has done wonders for bolstering investors’ confidence, however, an ugly debt crisis has been brewing in the background as well. A recent article from The Economist takes a closer look at the health of the Chinese banking system, revealing some concerning insights that may have investors scrambling for safety in the foreseeable future. The Asian economic giant appears to be plagued with unhealthy local government debt and concerning property loans. 

The Economist cites the infrastructure spending binge over the past few years that has led to a boom in local government financing vehicles (LGFVs), which is a major concern because these off-balance-sheet entities are used as way of getting around borrowing restrictions. As such, the government has been trying to diffuse the situation by rolling over these loans and pushing them off to “policy banks” like the China Development Bank, which saw close to $80 billion in LGFV debt rolled over from last year alone. 

Adding property loans to the mix has further caused reasons for concern.