Have you been reading economist Gary Shilling’s blog series for Bloomberg—“Why China is Headed for a Hard Landing?” He asks why investors have been so determined to overlook the chilling realities threatening Chinese growth—an aging labor force, consumers who save too much and spend too little, and political and economic policy tools that are too crude to deal with major challenges ahead.
Shilling doesn’t think things will end well for China, especially as U.S. consumers continue to retrench and the global commodity bubble begins to burst (which is happening now he argues).
Shilling’s series has tapped into a deepening fear among investors that China is heading for a more than just a slow down. In fact jittery investors are shifting out of China fast—particularly Chinese ETFs. Even though only 26 ETFs track China, investors have already pulled $1.04 billion out of them (a hefty percentage when you consider that those 26 ETFs are worth just $10.2 billion).
An interesting story emerges when you look at where that money is flowing—Brazil and Japan. Investors have continued to pour money into Brazilian ETFs, with an additional $1.43 billion going into the iShares MSCI Brazil Index Fund this year alone. But the biggest single-country ETF that has had the most money flowing in has been the iShares MSCI Japan ETF, which has drawn about $2.6 billion.
As China tilts toward a hard landing, investors are looking for new growth stories—whether it’s Japan as it spends money rebuilding post disaster or Brazil, which appears to have solid prospects ahead, ETF flows are showing where investors think the opportunities lie in the future.