Five ways to play the Chinese rebound

Chinese exports shot up 14% year-on-year in December, an upbeat data point that follows robust recent readings on industrial profits and manufacturing. As the world’s fastest growing economy, China matters. And a rebound will have ramifications for a variety of commodity and asset classes. Here are five areas where the China rebound are likely to be felt.

1) China consumes about 40% of the world’s copper supplies and copper futures have been rising on signs of stronger growth out of China. The S&P GSCI commodities index recently rose to its highest mark since October, thanks in part to Chinese growth, according to Bloomberg.

2)  A faster growing Chinese economy needs electricity and that means more coal. According to a recent Peabody Energy Study, global demand for coal is expected to grow to 8.9 billion tons by 2016 from 7.9 billion tons this year. About 700 million tons of that will come from China.

3) Alcoa (AA), which just reported earnings, is forecasting a 7% jump in aluminum prices thanks to Chinese demand.

4)  A sustained Chinese rebound would place upward pressure on commodity prices and inflation. If so, gold prices might benefit as investors look for an inflation hedge, according to this interesting post on Seeking Alpha.

5)  China-linked exchange traded funds such as SPDR S&P China (GXC) and iShares FTSE China 25 (FXI) are attracting attention once more – and look at EWH (in red in chart below). And check out this very good post by Conrad De Aenlle on how to play the Chinese growth story.

GXC Chart

GXC data by YCharts

Disclosure: Some investments discussed are held in client accounts as of January 10. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.