Daily Wisdom: China’s Economy is Expanding Edition

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An economic recovery will begin in the middle of this year, but many. Recession to dog state until 2010, experts say

Buy-to-let landlords are snapping up houses at knockdown prices despite falling rents, according to letting agents…Buy-to-let landlords swoop on cheap homes

I’m still looking for, and still not seeing, the economic recovery that everybody is talking about.Do you see what I see?

Italy is in a deep recession. The banking system resisted the first wave of the financial crisis, but credit conditions have tightened and households have suffered large financial losses. What is the outlook and what does Italy need to do to support long term growth? How can the education system be improved?OECD Economic Survey of Italy 2009

The good news in the latest World Bank China Quarterly: One. China is growing, thanks to China’s government. The World Bank estimates that the government’s policy response will account for about 6 percentage points of China’s 7.2% forecast growth (p. 8). That’s good. The good and bad news in the World Bank’s China Quarterly

US Unemployment Rate Getting Closer to Europe’s

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Historically the unemployment rate in the USA was lower when compared to European countries due to US economy being dynamic and vibrant.The policy of hire and fire by companies was accepted by the society as a means of keeping the economy strong.However this situation in changing due to the continued rise in  unemployment rates in the past couple of years.

The US unemployment rate is getting closer to unemployment rate in Europe as the charts show below (click to enlarge image):

Unemployment rates in USA and Europe Comparison

Source: International unemployment rates and employment indexes 2007-2009 (seasonally adjusted), Bureau of Labor Statistics, Division of International Labor Comparisons

The US unemployment rate  exceeded Germany’s rate in April and was very close to the rate in France. This is highly significant since these two German follow socialism and have always had high unemployment rates. For example, in France it is normal to have unemployment levels above 8%. In the above chart except France, the US rate is higher than all countries. While governments in Europe dole out liberal unemployment benefits it is not the case in the US where unemployment benefits are capped and stop after some weeks. Another factor is in the US, health insurance is a huge expense for the unemployed. In Europe due to national health insurance unemployed workers do not have to worry about medical care.

The US unemployment rate for the month of May was 9.4% which is higher than the 8.9% shown in the chart above.To put this in perspective, in April France had an unemployment rate of 9.2%.

Unemploymnet rates in European COuntries

Unemployment levels in Spain and Ireland  have been rising at a steep pace in the last few months.In Spain it exceeds an incredible 18% primarily due to the collapse of the real estate boom.

The Top 10 International ETFs by Assets

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Hundreds of ETFs are listed on the exchanges. However not all of them are able to attract significant amount of assets. The following are the top 10 global ETFs by Total Net Assets:

  1. iShares MSCI Emerging Markets Index (EEM)
  2. iShares MSCI EAFE Index (EFA)
  3. iShares FTSE/Xinhua China 25 Index (FXI)
  4. Vanguard Emerging Markets Stock ETF (VWO)
  5. iShares MSCI Brazil Index (EWZ)
  6. iShares MSCI Japan Index (EWJ)
  7. Vanguard Europe Pacific ETF (VEA)
  8. Vanguard FTSE All-World ex-US ETF (VEU)
  9. iShares MSCI Taiwan Index(EWT)
  10. iShares MSCI Pacific ex-Japan (EPP)

EEM and EFA have assets of $30.7B and $30.2 B respectively as of June 19,2009 making them the largest two international ETFs. Nearly half of the top 10 ETFs are related to emerging markets. This shows that investors are betting heavily on emerging markets this year. EEM, the largest emerging market ETF is also one of the largest traded ETF in the NYSE on a daily basis. Not surprisingly the ETF for China has the third most assets since China is one of the most favored destination for investors. The iShares Brazil ETF (EWZ) offers exposure to most large Brazilian companies as it tracks the Bolsa de Valores de So Paulo index.