Investors are worried that China’s decade-long run as the world's growth engine may be over— along with unprecedented demand for commodities and ultra-cheap labor and parts for manufacturers.
Stocks fell Monday partly on such fears, while traders dumped assets such as copper and shares of Caterpillar.
The reaction came after China cut its GDP target for this year to 7.5 percent, which would represent the slowest economic growth in eight years. That compares to an average growth rate of 11 percent over the last decade.
“The golden age of infrastructure investment is behind us now,” wrote Dong Tao, Credit Suisse chief economist for the Asia region, in a report that helped fuel the selling after Premier Wen Jiabao announced the lower growth forecast. “The golden age of the housing boom is behind us now” too, along with the boom in exports and tailwind from policy stimulus, said Tao.
The iShares FTSE/Xinhua China 25 ETF , which has more than doubled over its eight-year existence, got slammed by almost 3 percent. But derivative plays off the China growth engine got hit as well, including the Materials SPDR ETF and the Energy SPDR ETF.
In the last 10 years, Caterpillar’s stock has more than quadrupled on sales of earth movers and construction equipment to China. The Energy SPDR and Materials SPDR have climbed 170 percent and 60 percent respectively.Page 1 of 3 | Next Page